Correlation Between Lake Shore and Affinity Bancshares

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

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

Diversification Opportunities for Lake Shore and Affinity Bancshares

0.68

Correlation Coefficient

Lake Shore  Affinity Bancshares

Poor diversification

The 3 months correlation between Lake and Affinity is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Lake Shore Bancorp and Affinity Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Affinity Bancshares and Lake Shore 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 Lake Shore Bancorp are associated (or correlated) with Affinity Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Affinity Bancshares has no effect on the direction of Lake Shore i.e., Lake Shore and Affinity Bancshares go up and down completely randomly.

Pair Corralation between Lake Shore and Affinity Bancshares

Given the investment horizon of 90 days Lake Shore is expected to generate 2.69 times less return on investment than Affinity Bancshares. In addition to that, Lake Shore is 1.0 times more volatile than Affinity Bancshares. It trades about 0.02 of its total potential returns per unit of risk. Affinity Bancshares is currently generating about 0.05 per unit of volatility. If you would invest  1,458  in Affinity Bancshares on June 27, 2024 and sell it today you would earn a total of  697.00  from holding Affinity Bancshares or generate 47.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.35%
Values	Daily Returns

Lake Shore Bancorp  vs.  Affinity Bancshares

Lake Shore Bancorp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lake Shore Bancorp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting fundamental drivers, Lake Shore disclosed solid returns over the last few months and may actually be approaching a breakup point.

Affinity Bancshares

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Affinity Bancshares are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental drivers, Affinity Bancshares is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Lake Shore and Affinity Bancshares

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

The idea behind Lake Shore Bancorp and Affinity 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.