Correlation Between Community West and National Bank

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

Diversification Opportunities for Community West and National Bank

0.06

Correlation Coefficient

Community West  National Bank

Significant diversification

The 3 months correlation between Community and National is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Community West Bancshares and National Bank Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Bank Holdings 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 National Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Bank Holdings has no effect on the direction of Community West i.e., Community West and National Bank go up and down completely randomly.

Pair Corralation between Community West and National Bank

Given the investment horizon of 90 days Community West Bancshares is expected to under-perform the National Bank. But the stock apears to be less risky and, when comparing its historical volatility, Community West Bancshares is 1.32 times less risky than National Bank. The stock trades about -0.3 of its potential returns per unit of risk. The National Bank Holdings is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  3,541  in National Bank Holdings on January 30, 2024 and sell it today you would lose (191.00) from holding National Bank Holdings or give up 5.39% of portfolio value over 90 days.

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

Community West Bancshares  vs.  National Bank Holdings

Community West Bancshares

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Community West Bancshares are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting fundamental drivers, Community West exhibited solid returns over the last few months and may actually be approaching a breakup point.

National Bank Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Bank Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Community West and National Bank

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

The idea behind Community West Bancshares and National Bank Holdings 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.