Correlation Between Community West and First Farmers
Can any of the company-specific risk be diversified away by investing in both Community West and First Farmers 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 Community West and First Farmers into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Community West Bancshares and First Farmers Financial, you can compare the effects of market volatilities on Community West and First Farmers 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 Community West with a short position of First Farmers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Community West and First Farmers.
Diversification Opportunities for Community West and First Farmers
0.23 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Community and First is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Community West Bancshares and First Farmers Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Farmers Financial and Community West 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 Community West Bancshares are associated (or correlated) with First Farmers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Farmers Financial has no effect on the direction of Community West i.e., Community West and First Farmers go up and down completely randomly.
Pair Corralation between Community West and First Farmers
Given the investment horizon of 90 days Community West Bancshares is expected to generate 3.55 times more return on investment than First Farmers. However, Community West is 3.55 times more volatile than First Farmers Financial. It trades about 0.04 of its potential returns per unit of risk. First Farmers Financial is currently generating about 0.02 per unit of risk. If you would invest 1,385 in Community West Bancshares on November 2, 2024 and sell it today you would earn a total of 553.50 from holding Community West Bancshares or generate 39.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 81.14% |
| Values | Daily Returns |
Community West Bancshares vs. First Farmers Financial
Performance |
| Timeline |
| Community West Bancshares |
| First Farmers Financial |
Community West and First Farmers Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Community West and First Farmers
The main advantage of trading using opposite Community West and First Farmers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Community West position performs unexpectedly, First Farmers 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 First Farmers will offset losses from the drop in First Farmers' long position.| Community West vs. Home Federal Bancorp | Community West vs. Magyar Bancorp | Community West vs. First Northwest Bancorp | Community West vs. First Financial Northwest |
| First Farmers vs. Farmers Bancorp | First Farmers vs. Farmers Merchants Bancorp | First Farmers vs. Lakeland Financial | First Farmers vs. FFW Corporation |
Check out your portfolio center.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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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