Correlation Between First Capital and Lake Shore

Can any of the company-specific risk be diversified away by investing in both First Capital and Lake Shore at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining First Capital and Lake Shore into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between First Capital and Lake Shore Bancorp, you can compare the effects of market volatilities on First Capital and Lake Shore and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in First Capital with a short position of Lake Shore. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Capital and Lake Shore.

Diversification Opportunities for First Capital and Lake Shore

0.82

Correlation Coefficient

First Capital  Lake Shore

Very poor diversification

The 3 months correlation between First and Lake is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding First Capital and Lake Shore Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lake Shore Bancorp and First Capital is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on First Capital are associated (or correlated) with Lake Shore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lake Shore Bancorp has no effect on the direction of First Capital i.e., First Capital and Lake Shore go up and down completely randomly.

Pair Corralation between First Capital and Lake Shore

Given the investment horizon of 90 days First Capital is expected to generate 0.57 times more return on investment than Lake Shore. However, First Capital is 1.77 times less risky than Lake Shore. It trades about 0.19 of its potential returns per unit of risk. Lake Shore Bancorp is currently generating about 0.11 per unit of risk. If you would invest  3,176  in First Capital on December 28, 2024 and sell it today you would earn a total of  634.00  from holding First Capital or generate 19.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	93.33%
Values	Daily Returns

First Capital  vs.  Lake Shore Bancorp

First Capital

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Capital are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, First Capital reported solid returns over the last few months and may actually be approaching a breakup point.

Lake Shore Bancorp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lake Shore Bancorp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental drivers, Lake Shore disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Capital and Lake Shore

The main advantage of trading using opposite First Capital and Lake Shore positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Capital position performs unexpectedly, Lake Shore can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Lake Shore will offset losses from the drop in Lake Shore's long position.

The idea behind First Capital and Lake Shore Bancorp pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.