Correlation Between Lake Shore and Eagle Bancorp

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

Diversification Opportunities for Lake Shore and Eagle Bancorp

0.57

Correlation Coefficient

Lake Shore  Eagle Bancorp

Very weak diversification

The 3 months correlation between Lake and Eagle is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Lake Shore Bancorp and Eagle Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eagle 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 Eagle Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eagle Bancorp has no effect on the direction of Lake Shore i.e., Lake Shore and Eagle Bancorp go up and down completely randomly.

Pair Corralation between Lake Shore and Eagle Bancorp

Given the investment horizon of 90 days Lake Shore Bancorp is expected to generate 1.21 times more return on investment than Eagle Bancorp. However, Lake Shore is 1.21 times more volatile than Eagle Bancorp. It trades about 0.05 of its potential returns per unit of risk. Eagle Bancorp is currently generating about -0.31 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	Weak
Accuracy	76.19%
Values	Daily Returns

Lake Shore Bancorp  vs.  Eagle Bancorp

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.

Eagle Bancorp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eagle Bancorp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting fundamental drivers, Eagle Bancorp displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lake Shore and Eagle Bancorp

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

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