Correlation Between Dow Jones and Westamerica Bancorporation
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Westamerica Bancorporation 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 Dow Jones and Westamerica Bancorporation into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and Westamerica Bancorporation, you can compare the effects of market volatilities on Dow Jones and Westamerica Bancorporation 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 Dow Jones with a short position of Westamerica Bancorporation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Westamerica Bancorporation.
Diversification Opportunities for Dow Jones and Westamerica Bancorporation
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and Westamerica is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Westamerica Bancorp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westamerica Bancorporation and Dow Jones 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 Dow Jones Industrial are associated (or correlated) with Westamerica Bancorporation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westamerica Bancorporation has no effect on the direction of Dow Jones i.e., Dow Jones and Westamerica Bancorporation go up and down completely randomly.
Pair Corralation between Dow Jones and Westamerica Bancorporation
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.82 times less return on investment than Westamerica Bancorporation. But when comparing it to its historical volatility, Dow Jones Industrial is 3.2 times less risky than Westamerica Bancorporation. It trades about 0.29 of its potential returns per unit of risk. Westamerica Bancorporation is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 5,203 in Westamerica Bancorporation on August 31, 2024 and sell it today you would earn a total of 551.00 from holding Westamerica Bancorporation or generate 10.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Westamerica Bancorp.
Performance |
| Timeline |
Dow Jones and Westamerica Bancorporation Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Westamerica Bancorporation
Pair trading matchups for Westamerica Bancorporation
Pair Trading with Dow Jones and Westamerica Bancorporation
The main advantage of trading using opposite Dow Jones and Westamerica Bancorporation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Westamerica Bancorporation 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 Westamerica Bancorporation will offset losses from the drop in Westamerica Bancorporation's long position.| Dow Jones vs. Aerofoam Metals | Dow Jones vs. ACG Metals Limited | Dow Jones vs. China Clean Energy | Dow Jones vs. Fast Retailing Co |
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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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