Correlation Between Lake Shore and FNCB Bancorp

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

Diversification Opportunities for Lake Shore and FNCB Bancorp

0.32

Correlation Coefficient

Lake Shore  FNCB Bancorp

Weak diversification

The 3 months correlation between Lake and FNCB is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Lake Shore Bancorp and FNCB Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FNCB Bancorp 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 FNCB Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FNCB Bancorp has no effect on the direction of Lake Shore i.e., Lake Shore and FNCB Bancorp go up and down completely randomly.

Pair Corralation between Lake Shore and FNCB Bancorp

Given the investment horizon of 90 days Lake Shore Bancorp is expected to generate 0.92 times more return on investment than FNCB Bancorp. However, Lake Shore Bancorp is 1.08 times less risky than FNCB Bancorp. It trades about 0.03 of its potential returns per unit of risk. FNCB Bancorp is currently generating about 0.0 per unit of risk. If you would invest  1,150  in Lake Shore Bancorp on September 3, 2024 and sell it today you would earn a total of  196.00  from holding Lake Shore Bancorp or generate 17.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	81.0%
Values	Daily Returns

Lake Shore Bancorp  vs.  FNCB Bancorp

Lake Shore Bancorp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lake Shore Bancorp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting fundamental drivers, Lake Shore may actually be approaching a critical reversion point that can send shares even higher in January 2025.

FNCB Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FNCB Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, FNCB Bancorp 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 FNCB Bancorp

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

The idea behind Lake Shore Bancorp and FNCB Bancorp 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.