Correlation Between Shore Bancshares and CVB Financial

Can any of the company-specific risk be diversified away by investing in both Shore Bancshares and CVB Financial 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 Shore Bancshares and CVB Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shore Bancshares and CVB Financial, you can compare the effects of market volatilities on Shore Bancshares and CVB Financial 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 Shore Bancshares with a short position of CVB Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shore Bancshares and CVB Financial.

Diversification Opportunities for Shore Bancshares and CVB Financial

0.96

Correlation Coefficient

Shore Bancshares  CVB Financial

Almost no diversification

The 3 months correlation between Shore and CVB is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Shore Bancshares and CVB Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVB Financial and Shore Bancshares 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 Shore Bancshares are associated (or correlated) with CVB Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVB Financial has no effect on the direction of Shore Bancshares i.e., Shore Bancshares and CVB Financial go up and down completely randomly.

Pair Corralation between Shore Bancshares and CVB Financial

Given the investment horizon of 90 days Shore Bancshares is expected to generate 0.9 times more return on investment than CVB Financial. However, Shore Bancshares is 1.11 times less risky than CVB Financial. It trades about 0.08 of its potential returns per unit of risk. CVB Financial is currently generating about 0.06 per unit of risk. If you would invest  1,053  in Shore Bancshares on September 12, 2024 and sell it today you would earn a total of  705.50  from holding Shore Bancshares or generate 67.0% return on investment over 90 days.

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

Shore Bancshares  vs.  CVB Financial

Shore Bancshares

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shore Bancshares are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady fundamental drivers, Shore Bancshares demonstrated solid returns over the last few months and may actually be approaching a breakup point.

CVB Financial

Risk-Adjusted Performance

15 of 100

Good

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

Pair Trading with Shore Bancshares and CVB Financial

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

The idea behind Shore Bancshares and CVB 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.