Correlation Between Lake Shore and VersaBank

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

Diversification Opportunities for Lake Shore and VersaBank

0.19

Correlation Coefficient

Lake Shore  VersaBank

Average diversification

The 3 months correlation between Lake and VersaBank is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Lake Shore Bancorp and VersaBank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VersaBank 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 VersaBank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VersaBank has no effect on the direction of Lake Shore i.e., Lake Shore and VersaBank go up and down completely randomly.

Pair Corralation between Lake Shore and VersaBank

Given the investment horizon of 90 days Lake Shore is expected to generate 4.18 times less return on investment than VersaBank. In addition to that, Lake Shore is 1.03 times more volatile than VersaBank. It trades about 0.01 of its total potential returns per unit of risk. VersaBank is currently generating about 0.06 per unit of volatility. If you would invest  771.00  in VersaBank on October 13, 2024 and sell it today you would earn a total of  572.00  from holding VersaBank or generate 74.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	94.96%
Values	Daily Returns

Lake Shore Bancorp  vs.  VersaBank

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.

VersaBank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VersaBank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Lake Shore and VersaBank

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

The idea behind Lake Shore Bancorp and VersaBank 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.