Correlation Between Community West and National Bankshares

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

Diversification Opportunities for Community West and National Bankshares

0.75

Correlation Coefficient

Community West  National Bankshares

Poor diversification

The 3 months correlation between Community and National is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Community West Bancshares and National Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Bankshares 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 Bankshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Bankshares has no effect on the direction of Community West i.e., Community West and National Bankshares go up and down completely randomly.

Pair Corralation between Community West and National Bankshares

Given the investment horizon of 90 days Community West Bancshares is expected to generate 0.8 times more return on investment than National Bankshares. However, Community West Bancshares is 1.25 times less risky than National Bankshares. It trades about -0.15 of its potential returns per unit of risk. National Bankshares is currently generating about -0.12 per unit of risk. If you would invest  1,858  in Community West Bancshares on January 15, 2025 and sell it today you would lose (286.00) from holding Community West Bancshares or give up 15.39% of portfolio value over 90 days.

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

Community West Bancshares  vs.  National Bankshares

Community West Bancshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Community West Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's fundamental drivers remain rather sound which may send shares a bit higher in May 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

National Bankshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days National Bankshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Community West and National Bankshares

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

The idea behind Community West Bancshares and National Bankshares 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.