Correlation Between Community Bank and Independent Bank

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

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

Diversification Opportunities for Community Bank and Independent Bank

0.87

Correlation Coefficient

Community Bank  Independent Bank

Very poor diversification

The 3 months correlation between Community and Independent is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Community Bank System and Independent Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Independent Bank and Community Bank 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 Bank System are associated (or correlated) with Independent Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Independent Bank has no effect on the direction of Community Bank i.e., Community Bank and Independent Bank go up and down completely randomly.

Pair Corralation between Community Bank and Independent Bank

Considering the 90-day investment horizon Community Bank System is expected to under-perform the Independent Bank. But the stock apears to be less risky and, when comparing its historical volatility, Community Bank System is 1.04 times less risky than Independent Bank. The stock trades about -0.01 of its potential returns per unit of risk. The Independent Bank is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  6,648  in Independent Bank on July 12, 2025 and sell it today you would earn a total of  232.00  from holding Independent Bank or generate 3.49% return on investment over 90 days.

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

Community Bank System  vs.  Independent Bank

Community Bank System

Risk-Adjusted Performance

Weakest

Over the last 90 days Community Bank System has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental drivers, Community Bank is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Independent Bank

Risk-Adjusted Performance

Soft

Compared to the overall equity markets, risk-adjusted returns on investments in Independent Bank are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Independent Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Community Bank and Independent Bank

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

The idea behind Community Bank System and Independent Bank 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.