Correlation Between Fifth Third and Western Alliance
Can any of the company-specific risk be diversified away by investing in both Fifth Third and Western Alliance 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 Fifth Third and Western Alliance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fifth Third Bancorp and Western Alliance Bancorporation, you can compare the effects of market volatilities on Fifth Third and Western Alliance 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 Fifth Third with a short position of Western Alliance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fifth Third and Western Alliance.
Diversification Opportunities for Fifth Third and Western Alliance
0.35 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Fifth and Western is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Fifth Third Bancorp and Western Alliance Bancorp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Alliance Ban and Fifth Third 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 Fifth Third Bancorp are associated (or correlated) with Western Alliance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Alliance Ban has no effect on the direction of Fifth Third i.e., Fifth Third and Western Alliance go up and down completely randomly.
Pair Corralation between Fifth Third and Western Alliance
Assuming the 90 days horizon Fifth Third is expected to generate 3.21 times less return on investment than Western Alliance. But when comparing it to its historical volatility, Fifth Third Bancorp is 3.1 times less risky than Western Alliance. It trades about 0.13 of its potential returns per unit of risk. Western Alliance Bancorporation is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 1,751 in Western Alliance Bancorporation on September 3, 2024 and sell it today you would earn a total of 444.00 from holding Western Alliance Bancorporation or generate 25.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fifth Third Bancorp vs. Western Alliance Bancorp.
Performance |
| Timeline |
| Fifth Third Bancorp |
| Western Alliance Ban |
Fifth Third and Western Alliance Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fifth Third and Western Alliance
The main advantage of trading using opposite Fifth Third and Western Alliance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fifth Third position performs unexpectedly, Western Alliance 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 Alliance will offset losses from the drop in Western Alliance's long position.| Fifth Third vs. Capital One Financial | Fifth Third vs. Bank of America | Fifth Third vs. KeyCorp | Fifth Third vs. HUMANA INC |
| Western Alliance vs. New York Community | Western Alliance vs. Bank of Hawaii | Western Alliance vs. US Bancorp | Western Alliance vs. Truist Financial |
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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