Correlation Between East West and Old Second
Can any of the company-specific risk be diversified away by investing in both East West and Old Second 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 Old Second 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 Old Second Bancorp, you can compare the effects of market volatilities on East West and Old Second 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 Old Second. Check out your portfolio center. Please also check ongoing floating volatility patterns of East West and Old Second.
Diversification Opportunities for East West and Old Second
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between East and Old is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding East West Bancorp and Old Second Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Old Second 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 Old Second. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Old Second Bancorp has no effect on the direction of East West i.e., East West and Old Second go up and down completely randomly.
Pair Corralation between East West and Old Second
Given the investment horizon of 90 days East West Bancorp is expected to generate 1.02 times more return on investment than Old Second. However, East West is 1.02 times more volatile than Old Second Bancorp. It trades about 0.11 of its potential returns per unit of risk. Old Second Bancorp is currently generating about 0.06 per unit of risk. If you would invest 7,002 in East West Bancorp on August 25, 2024 and sell it today you would earn a total of 4,006 from holding East West Bancorp or generate 57.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
East West Bancorp vs. Old Second Bancorp
Performance |
| Timeline |
| East West Bancorp |
| Old Second Bancorp |
East West and Old Second Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with East West and Old Second
The main advantage of trading using opposite East West and Old Second positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if East West position performs unexpectedly, Old Second 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 Old Second will offset losses from the drop in Old Second'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 |
| Old Second vs. Ohio Valley Banc | Old Second vs. Peoples Bancorp | Old Second vs. OceanFirst Financial Corp | Old Second vs. QCR Holdings |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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