Correlation Between Community West and South Plains
Can any of the company-specific risk be diversified away by investing in both Community West and South Plains 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 South Plains 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 South Plains Financial, you can compare the effects of market volatilities on Community West and South Plains 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 South Plains. Check out your portfolio center. Please also check ongoing floating volatility patterns of Community West and South Plains.
Diversification Opportunities for Community West and South Plains
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Community and South is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Community West Bancshares and South Plains Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South Plains 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 South Plains. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South Plains Financial has no effect on the direction of Community West i.e., Community West and South Plains go up and down completely randomly.
Pair Corralation between Community West and South Plains
Given the investment horizon of 90 days Community West is expected to generate 1.49 times less return on investment than South Plains. But when comparing it to its historical volatility, Community West Bancshares is 1.19 times less risky than South Plains. It trades about 0.12 of its potential returns per unit of risk. South Plains Financial is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 2,657 in South Plains Financial on September 1, 2024 and sell it today you would earn a total of 1,232 from holding South Plains Financial or generate 46.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Community West Bancshares vs. South Plains Financial
Performance |
| Timeline |
| Community West Bancshares |
| South Plains Financial |
Community West and South Plains Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Community West and South Plains
The main advantage of trading using opposite Community West and South Plains positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Community West position performs unexpectedly, South Plains 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 South Plains will offset losses from the drop in South Plains' 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 |
| South Plains vs. Sound Financial Bancorp | South Plains vs. Finward Bancorp | South Plains vs. Franklin Financial Services | South Plains vs. Community West Bancshares |
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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