Correlation Between Community West and Colony Bankcorp

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

Diversification Opportunities for Community West and Colony Bankcorp

0.91

Correlation Coefficient

Community West  Colony Bankcorp

Almost no diversification

The 3 months correlation between Community and Colony is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Community West Bancshares and Colony Bankcorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colony Bankcorp 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 Colony Bankcorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Colony Bankcorp has no effect on the direction of Community West i.e., Community West and Colony Bankcorp go up and down completely randomly.

Pair Corralation between Community West and Colony Bankcorp

Given the investment horizon of 90 days Community West is expected to generate 3.01 times less return on investment than Colony Bankcorp. But when comparing it to its historical volatility, Community West Bancshares is 1.39 times less risky than Colony Bankcorp. It trades about 0.03 of its potential returns per unit of risk. Colony Bankcorp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,527  in Colony Bankcorp on September 21, 2024 and sell it today you would earn a total of  95.00  from holding Colony Bankcorp or generate 6.22% return on investment over 90 days.

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

Community West Bancshares  vs.  Colony Bankcorp

Community West Bancshares

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Community West Bancshares are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental drivers, Community West is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Colony Bankcorp

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Colony Bankcorp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Colony Bankcorp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Community West and Colony Bankcorp

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

The idea behind Community West Bancshares and Colony Bankcorp 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.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.