Correlation Between Lake Shore and Hilltop Holdings

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

Diversification Opportunities for Lake Shore and Hilltop Holdings

-0.01

Correlation Coefficient

Lake Shore  Hilltop Holdings

Good diversification

The 3 months correlation between Lake and Hilltop is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Lake Shore Bancorp and Hilltop Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hilltop Holdings 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 Hilltop Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hilltop Holdings has no effect on the direction of Lake Shore i.e., Lake Shore and Hilltop Holdings go up and down completely randomly.

Pair Corralation between Lake Shore and Hilltop Holdings

Given the investment horizon of 90 days Lake Shore Bancorp is expected to generate 1.1 times more return on investment than Hilltop Holdings. However, Lake Shore is 1.1 times more volatile than Hilltop Holdings. It trades about 0.07 of its potential returns per unit of risk. Hilltop Holdings is currently generating about 0.02 per unit of risk. If you would invest  973.00  in Lake Shore Bancorp on September 26, 2024 and sell it today you would earn a total of  367.00  from holding Lake Shore Bancorp or generate 37.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.57%
Values	Daily Returns

Lake Shore Bancorp  vs.  Hilltop Holdings

Lake Shore Bancorp

Risk-Adjusted Performance

0 of 100

Very 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.

Hilltop Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hilltop Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Lake Shore and Hilltop Holdings

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

The idea behind Lake Shore Bancorp and Hilltop Holdings 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.