Correlation Between East West and First United
Can any of the company-specific risk be diversified away by investing in both East West and First United 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 First United 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 First United, you can compare the effects of market volatilities on East West and First United 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 First United. Check out your portfolio center. Please also check ongoing floating volatility patterns of East West and First United.
Diversification Opportunities for East West and First United
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between East and First is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding East West Bancorp and First United in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First United 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 First United. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First United has no effect on the direction of East West i.e., East West and First United go up and down completely randomly.
Pair Corralation between East West and First United
Given the investment horizon of 90 days East West is expected to generate 1.02 times less return on investment than First United. In addition to that, East West is 1.44 times more volatile than First United. It trades about 0.06 of its total potential returns per unit of risk. First United is currently generating about 0.09 per unit of volatility. If you would invest 1,828 in First United on August 29, 2024 and sell it today you would earn a total of 1,725 from holding First United or generate 94.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
East West Bancorp vs. First United
Performance |
| Timeline |
| East West Bancorp |
| First United |
East West and First United Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with East West and First United
The main advantage of trading using opposite East West and First United positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if East West position performs unexpectedly, First United 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 First United will offset losses from the drop in First United'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 |
| First United vs. First Community | First United vs. Greene County Bancorp | First United vs. Community West Bancshares | First United vs. Affinity Bancshares |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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