Correlation Between Summit Bancshares and CF Bankshares

Can any of the company-specific risk be diversified away by investing in both Summit Bancshares and CF Bankshares 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 Summit Bancshares and CF Bankshares into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Summit Bancshares and CF Bankshares, you can compare the effects of market volatilities on Summit Bancshares and CF Bankshares 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 Summit Bancshares with a short position of CF Bankshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Summit Bancshares and CF Bankshares.

Diversification Opportunities for Summit Bancshares and CF Bankshares

0.62

Correlation Coefficient

Summit Bancshares  CF Bankshares

Poor diversification

The 3 months correlation between Summit and CFBK is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Summit Bancshares and CF Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CF Bankshares and Summit Bancshares 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 Summit Bancshares are associated (or correlated) with CF Bankshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CF Bankshares has no effect on the direction of Summit Bancshares i.e., Summit Bancshares and CF Bankshares go up and down completely randomly.

Pair Corralation between Summit Bancshares and CF Bankshares

Given the investment horizon of 90 days Summit Bancshares is expected to generate 0.29 times more return on investment than CF Bankshares. However, Summit Bancshares is 3.4 times less risky than CF Bankshares. It trades about -0.05 of its potential returns per unit of risk. CF Bankshares is currently generating about -0.12 per unit of risk. If you would invest  4,458  in Summit Bancshares on September 22, 2024 and sell it today you would lose (47.00) from holding Summit Bancshares or give up 1.05% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Summit Bancshares  vs.  CF Bankshares

Summit Bancshares

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Bancshares are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Summit Bancshares is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

CF Bankshares

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CF Bankshares are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady fundamental drivers, CF Bankshares disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Summit Bancshares and CF Bankshares

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

The idea behind Summit Bancshares and CF Bankshares 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.