Correlation Between Lake Shore and Old Point

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

Diversification Opportunities for Lake Shore and Old Point

0.66

Correlation Coefficient

Lake Shore  Old Point

Poor diversification

The 3 months correlation between Lake and Old is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Lake Shore Bancorp and Old Point Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Old Point Financial 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 Old Point. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Old Point Financial has no effect on the direction of Lake Shore i.e., Lake Shore and Old Point go up and down completely randomly.

Pair Corralation between Lake Shore and Old Point

Given the investment horizon of 90 days Lake Shore is expected to generate 1.67 times less return on investment than Old Point. But when comparing it to its historical volatility, Lake Shore Bancorp is 1.17 times less risky than Old Point. It trades about 0.04 of its potential returns per unit of risk. Old Point Financial is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,504  in Old Point Financial on August 31, 2024 and sell it today you would earn a total of  748.00  from holding Old Point Financial or generate 49.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.76%
Values	Daily Returns

Lake Shore Bancorp  vs.  Old Point Financial

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 weak fundamental drivers, Lake Shore may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Old Point Financial

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Old Point Financial are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Old Point reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lake Shore and Old Point

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

The idea behind Lake Shore Bancorp and Old Point Financial 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 Transaction History module to view history of all your transactions and understand their impact on performance.