Correlation Between East West and CF Financial
Can any of the company-specific risk be diversified away by investing in both East West and CF Financial 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 East West and CF Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between East West Bancorp and CF Financial, you can compare the effects of market volatilities on East West and CF Financial 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 East West with a short position of CF Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of East West and CF Financial.
Diversification Opportunities for East West and CF Financial
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between East and CFFI is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding East West Bancorp and CF Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CF Financial and East 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 East West Bancorp are associated (or correlated) with CF Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CF Financial has no effect on the direction of East West i.e., East West and CF Financial go up and down completely randomly.
Pair Corralation between East West and CF Financial
Given the investment horizon of 90 days East West Bancorp is expected to generate 0.77 times more return on investment than CF Financial. However, East West Bancorp is 1.3 times less risky than CF Financial. It trades about 0.12 of its potential returns per unit of risk. CF Financial is currently generating about 0.04 per unit of risk. If you would invest 5,051 in East West Bancorp on September 1, 2024 and sell it today you would earn a total of 5,917 from holding East West Bancorp or generate 117.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
East West Bancorp vs. CF Financial
Performance |
| Timeline |
| East West Bancorp |
| CF Financial |
East West and CF Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with East West and CF Financial
The main advantage of trading using opposite East West and CF Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if East West position performs unexpectedly, CF Financial 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 CF Financial will offset losses from the drop in CF Financial's long position.| East West vs. Barclays PLC ADR | East West vs. UBS Group AG | East West vs. ING Group NV | East West vs. Citigroup |
| CF Financial vs. Home Federal Bancorp | CF Financial vs. First Financial Northwest | CF Financial vs. First Northwest Bancorp | CF Financial vs. First Capital |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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