Correlation Between Community West and TriCo Bancshares

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

Diversification Opportunities for Community West and TriCo Bancshares

0.88

Correlation Coefficient

Community West  TriCo Bancshares

Very poor diversification

The 3 months correlation between Community and TriCo is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Community West Bancshares and TriCo Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TriCo Bancshares 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 TriCo Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TriCo Bancshares has no effect on the direction of Community West i.e., Community West and TriCo Bancshares go up and down completely randomly.

Pair Corralation between Community West and TriCo Bancshares

Given the investment horizon of 90 days Community West Bancshares is expected to generate 1.02 times more return on investment than TriCo Bancshares. However, Community West is 1.02 times more volatile than TriCo Bancshares. It trades about -0.11 of its potential returns per unit of risk. TriCo Bancshares is currently generating about -0.16 per unit of risk. If you would invest  1,879  in Community West Bancshares on January 6, 2025 and sell it today you would lose (213.00) from holding Community West Bancshares or give up 11.34% of portfolio value over 90 days.

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

Community West Bancshares  vs.  TriCo Bancshares

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 latest unsteady performance, the Stock's fundamental drivers remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

TriCo Bancshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days TriCo Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental drivers remain quite persistent which may send shares a bit higher in May 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Community West and TriCo Bancshares

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

The idea behind Community West Bancshares and TriCo Bancshares 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.