Correlation Between Franklin Financial and Community West

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

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

Diversification Opportunities for Franklin Financial and Community West

0.31

Correlation Coefficient

Franklin Financial  Community West

Weak diversification

The 3 months correlation between Franklin and Community is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Financial Services and Community West Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Community West Bancshares and Franklin Financial 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 Franklin Financial Services are associated (or correlated) with Community West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Community West Bancshares has no effect on the direction of Franklin Financial i.e., Franklin Financial and Community West go up and down completely randomly.

Pair Corralation between Franklin Financial and Community West

Given the investment horizon of 90 days Franklin Financial Services is expected to under-perform the Community West. In addition to that, Franklin Financial is 1.26 times more volatile than Community West Bancshares. It trades about -0.53 of its total potential returns per unit of risk. Community West Bancshares is currently generating about -0.18 per unit of volatility. If you would invest  1,771  in Community West Bancshares on February 26, 2024 and sell it today you would lose (62.00) from holding Community West Bancshares or give up 3.5% of portfolio value over 90 days.

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

Franklin Financial Services  vs.  Community West Bancshares

Franklin Financial

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Financial Services are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Franklin Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Community West Bancshares

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Community West Bancshares are ranked lower than 7 (%) 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.

Pair Trading with Franklin Financial and Community West

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

The idea behind Franklin Financial Services and Community West 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.

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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.