Correlation Between Lake Shore and First Horizon

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

Diversification Opportunities for Lake Shore and First Horizon

0.21

Correlation Coefficient

Lake Shore  First Horizon

Modest diversification

The 3 months correlation between Lake and First is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Lake Shore Bancorp and First Horizon National in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Horizon National 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 First Horizon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Horizon National has no effect on the direction of Lake Shore i.e., Lake Shore and First Horizon go up and down completely randomly.

Pair Corralation between Lake Shore and First Horizon

Given the investment horizon of 90 days Lake Shore is expected to generate 2.88 times less return on investment than First Horizon. But when comparing it to its historical volatility, Lake Shore Bancorp is 1.25 times less risky than First Horizon. It trades about 0.05 of its potential returns per unit of risk. First Horizon National is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,422  in First Horizon National on October 13, 2024 and sell it today you would earn a total of  584.00  from holding First Horizon National or generate 41.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	92.31%
Values	Daily Returns

Lake Shore Bancorp  vs.  First Horizon National

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.

First Horizon National

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Horizon National are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal technical indicators, First Horizon displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lake Shore and First Horizon

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

The idea behind Lake Shore Bancorp and First Horizon National 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..