Correlation Between Lake Shore and CB Financial

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

By analyzing existing cross correlation between Lake Shore Bancorp and CB Financial Services, you can compare the effects of market volatilities on Lake Shore and CB Financial 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 Lake Shore with a short position of CB Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lake Shore and CB Financial.

Diversification Opportunities for Lake Shore and CB Financial

0.23

Correlation Coefficient

Lake Shore  CB Financial

Modest diversification

The 3 months correlation between Lake and CBFV is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Lake Shore Bancorp and CB Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CB Financial Services and Lake Shore 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 Lake Shore Bancorp are associated (or correlated) with CB Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CB Financial Services has no effect on the direction of Lake Shore i.e., Lake Shore and CB Financial go up and down completely randomly.

Pair Corralation between Lake Shore and CB Financial

Given the investment horizon of 90 days Lake Shore Bancorp is expected to generate 2.04 times more return on investment than CB Financial. However, Lake Shore is 2.04 times more volatile than CB Financial Services. It trades about 0.11 of its potential returns per unit of risk. CB Financial Services is currently generating about 0.03 per unit of risk. If you would invest  1,358  in Lake Shore Bancorp on December 27, 2024 and sell it today you would earn a total of  227.00  from holding Lake Shore Bancorp or generate 16.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	91.67%
Values	Daily Returns

Lake Shore Bancorp  vs.  CB Financial Services

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.

CB Financial Services

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CB Financial Services are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable technical and fundamental indicators, CB Financial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Lake Shore and CB Financial

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

The idea behind Lake Shore Bancorp and CB Financial Services 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.