Correlation Between Lake Shore and Chemung Financial

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

Diversification Opportunities for Lake Shore and Chemung Financial

0.36

Correlation Coefficient

Lake Shore  Chemung Financial

Weak diversification

The 3 months correlation between Lake and Chemung is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Lake Shore Bancorp and Chemung Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chemung Financial Corp 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 Chemung Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chemung Financial Corp has no effect on the direction of Lake Shore i.e., Lake Shore and Chemung Financial go up and down completely randomly.

Pair Corralation between Lake Shore and Chemung Financial

Given the investment horizon of 90 days Lake Shore Bancorp is expected to generate 1.35 times more return on investment than Chemung Financial. However, Lake Shore is 1.35 times more volatile than Chemung Financial Corp. It trades about 0.05 of its potential returns per unit of risk. Chemung Financial Corp is currently generating about -0.13 per unit of risk. If you would invest  1,345  in Lake Shore Bancorp on September 24, 2024 and sell it today you would earn a total of  16.00  from holding Lake Shore Bancorp or generate 1.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	80.0%
Values	Daily Returns

Lake Shore Bancorp  vs.  Chemung Financial Corp

Lake Shore Bancorp

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Lake Shore Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Chemung Financial Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Chemung Financial Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable primary indicators, Chemung Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Lake Shore and Chemung Financial

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

The idea behind Lake Shore Bancorp and Chemung Financial Corp 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.