Correlation Between East West and Great Southern
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
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 Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
East West Bancorp vs. Great Southern Bancorp
Performance |
Timeline |
East West Bancorp |
Great Southern Bancorp |
East West and Great Southern Volatility Contrast
Predicted Return Density |
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.East West vs. Barclays PLC ADR | ||
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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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