Correlation Between East West and Western New
Can any of the company-specific risk be diversified away by investing in both East West and Western New 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 Western New 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 Western New England, you can compare the effects of market volatilities on East West and Western New 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 Western New. Check out your portfolio center. Please also check ongoing floating volatility patterns of East West and Western New.
Diversification Opportunities for East West and Western New
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between East and Western is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding East West Bancorp and Western New England in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western New England 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 Western New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western New England has no effect on the direction of East West i.e., East West and Western New go up and down completely randomly.
Pair Corralation between East West and Western New
Given the investment horizon of 90 days East West Bancorp is expected to generate 1.88 times more return on investment than Western New. However, East West is 1.88 times more volatile than Western New England. It trades about 0.23 of its potential returns per unit of risk. Western New England is currently generating about 0.29 per unit of risk. If you would invest 9,828 in East West Bancorp on August 27, 2024 and sell it today you would earn a total of 1,295 from holding East West Bancorp or generate 13.18% 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. Western New England
Performance |
| Timeline |
| East West Bancorp |
| Western New England |
East West and Western New Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with East West and Western New
The main advantage of trading using opposite East West and Western New positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if East West position performs unexpectedly, Western New 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 Western New will offset losses from the drop in Western New'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 |
| Western New vs. Fifth Third Bancorp | Western New vs. Zions Bancorporation | Western New vs. Huntington Bancshares Incorporated | Western New vs. Comerica |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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