Correlation Between Lake Shore and National Bank

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

Diversification Opportunities for Lake Shore and National Bank

0.41

Correlation Coefficient

Lake Shore  National Bank

Very weak diversification

The 3 months correlation between Lake and National is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Lake Shore Bancorp and National Bank Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Bank 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 National Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Bank Holdings has no effect on the direction of Lake Shore i.e., Lake Shore and National Bank go up and down completely randomly.

Pair Corralation between Lake Shore and National Bank

Given the investment horizon of 90 days Lake Shore Bancorp is expected to generate 1.01 times more return on investment than National Bank. However, Lake Shore is 1.01 times more volatile than National Bank Holdings. It trades about 0.02 of its potential returns per unit of risk. National Bank Holdings is currently generating about 0.02 per unit of risk. If you would invest  1,191  in Lake Shore Bancorp on September 26, 2024 and sell it today you would earn a total of  149.00  from holding Lake Shore Bancorp or generate 12.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.97%
Values	Daily Returns

Lake Shore Bancorp  vs.  National Bank 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.

National Bank Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in National Bank Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical indicators, National Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Lake Shore and National Bank

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

The idea behind Lake Shore Bancorp and National Bank 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.