Correlation Between Lake Shore and Western New

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

Diversification Opportunities for Lake Shore and Western New

0.25

Correlation Coefficient

Lake Shore  Western New

Modest diversification

The 3 months correlation between Lake and Western is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Lake Shore Bancorp and Western New England in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western New England 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 Western New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western New England has no effect on the direction of Lake Shore i.e., Lake Shore and Western New go up and down completely randomly.

Pair Corralation between Lake Shore and Western New

Given the investment horizon of 90 days Lake Shore Bancorp is expected to generate 1.16 times more return on investment than Western New. However, Lake Shore is 1.16 times more volatile than Western New England. It trades about 0.01 of its potential returns per unit of risk. Western New England is currently generating about 0.01 per unit of risk. If you would invest  1,290  in Lake Shore Bancorp on October 12, 2024 and sell it today you would earn a total of  51.00  from holding Lake Shore Bancorp or generate 3.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.15%
Values	Daily Returns

Lake Shore Bancorp  vs.  Western New England

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.

Western New England

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western New England has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Western New is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lake Shore and Western New

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

The idea behind Lake Shore Bancorp and Western New England 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.