Correlation Between Lakeland Financial and Community West

Can any of the company-specific risk be diversified away by investing in both Lakeland Financial and Community West 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 Lakeland Financial and Community West into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lakeland Financial and Community West Bancshares, you can compare the effects of market volatilities on Lakeland Financial and Community West 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 Lakeland Financial with a short position of Community West. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lakeland Financial and Community West.

Diversification Opportunities for Lakeland Financial and Community West

0.63

Correlation Coefficient

Lakeland Financial  Community West

Poor diversification

The 3 months correlation between Lakeland and Community is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Lakeland Financial and Community West Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Community West Bancshares and Lakeland Financial 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 Lakeland Financial are associated (or correlated) with Community West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Community West Bancshares has no effect on the direction of Lakeland Financial i.e., Lakeland Financial and Community West go up and down completely randomly.

Pair Corralation between Lakeland Financial and Community West

Given the investment horizon of 90 days Lakeland Financial is expected to under-perform the Community West. In addition to that, Lakeland Financial is 1.03 times more volatile than Community West Bancshares. It trades about -0.14 of its total potential returns per unit of risk. Community West Bancshares is currently generating about -0.05 per unit of volatility. If you would invest  1,925  in Community West Bancshares on December 29, 2024 and sell it today you would lose (85.00) from holding Community West Bancshares or give up 4.42% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Lakeland Financial  vs.  Community West Bancshares

Lakeland Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lakeland Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Community West Bancshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Community West Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, Community West is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Lakeland Financial and Community West

The main advantage of trading using opposite Lakeland Financial and Community West positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lakeland Financial position performs unexpectedly, Community West 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 Community West will offset losses from the drop in Community West's long position.

The idea behind Lakeland Financial and Community West Bancshares 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.

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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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.