Correlation Between Lake Shore and Capital Bancorp

Can any of the company-specific risk be diversified away by investing in both Lake Shore and Capital Bancorp 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 Capital Bancorp 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 Capital Bancorp, you can compare the effects of market volatilities on Lake Shore and Capital Bancorp 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 Capital Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lake Shore and Capital Bancorp.

Diversification Opportunities for Lake Shore and Capital Bancorp

0.3

Correlation Coefficient

Lake Shore  Capital Bancorp

Weak diversification

The 3 months correlation between Lake and Capital is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Lake Shore Bancorp and Capital Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Bancorp 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 Capital Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Bancorp has no effect on the direction of Lake Shore i.e., Lake Shore and Capital Bancorp go up and down completely randomly.

Pair Corralation between Lake Shore and Capital Bancorp

Given the investment horizon of 90 days Lake Shore is expected to generate 1.68 times less return on investment than Capital Bancorp. In addition to that, Lake Shore is 1.18 times more volatile than Capital Bancorp. It trades about 0.01 of its total potential returns per unit of risk. Capital Bancorp is currently generating about 0.03 per unit of volatility. If you would invest  2,229  in Capital Bancorp on October 12, 2024 and sell it today you would earn a total of  447.00  from holding Capital Bancorp or generate 20.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.15%
Values	Daily Returns

Lake Shore Bancorp  vs.  Capital Bancorp

Lake Shore Bancorp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lake Shore Bancorp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, Lake Shore is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Capital Bancorp

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Bancorp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, Capital Bancorp may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Lake Shore and Capital Bancorp

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

The idea behind Lake Shore Bancorp and Capital 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.

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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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.