Correlation Between East West and Great Southern

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Can any of the company-specific risk be diversified away by investing in both East West and Great Southern 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 Great Southern 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 Great Southern Bancorp, you can compare the effects of market volatilities on East West and Great Southern 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 Great Southern. Check out your portfolio center. Please also check ongoing floating volatility patterns of East West and Great Southern.

Diversification Opportunities for East West and Great Southern

EastGreatDiversified AwayEastGreatDiversified Away100%
0.63
  Correlation Coefficient

Poor diversification

The 3 months correlation between East and Great is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding East West Bancorp and Great Southern Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great Southern Bancorp 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 Great Southern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great Southern Bancorp has no effect on the direction of East West i.e., East West and Great Southern go up and down completely randomly.

Pair Corralation between East West and Great Southern

Given the investment horizon of 90 days East West Bancorp is expected to under-perform the Great Southern. But the stock apears to be less risky and, when comparing its historical volatility, East West Bancorp is 1.08 times less risky than Great Southern. The stock trades about -0.38 of its potential returns per unit of risk. The Great Southern Bancorp is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  5,953  in Great Southern Bancorp on November 27, 2024 and sell it today you would lose (117.00) from holding Great Southern Bancorp or give up 1.97% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

East West Bancorp  vs.  Great Southern Bancorp

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -10-505
JavaScript chart by amCharts 3.21.15EWBC GSBC
       Timeline  
East West Bancorp 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days East West Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental drivers remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb95100105110
Great Southern Bancorp 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Great Southern Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's fundamental drivers remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb565860626466

East West and Great Southern Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-2.51-1.9-1.3-0.7-0.10.461.041.622.22.78 0.080.100.120.140.160.18
JavaScript chart by amCharts 3.21.15EWBC GSBC
       Returns  

Pair Trading with East West and Great Southern

The main advantage of trading using opposite East West and Great Southern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if East West position performs unexpectedly, Great Southern 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 Great Southern will offset losses from the drop in Great Southern's long position.
The idea behind East West Bancorp and Great Southern Bancorp 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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