Correlation Between PacWest Bancorp and First Republic
Can any of the company-specific risk be diversified away by investing in both PacWest Bancorp and First Republic 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 PacWest Bancorp and First Republic into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PacWest Bancorp and First Republic Bank, you can compare the effects of market volatilities on PacWest Bancorp and First Republic 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 PacWest Bancorp with a short position of First Republic. Check out your portfolio center. Please also check ongoing floating volatility patterns of PacWest Bancorp and First Republic.
Diversification Opportunities for PacWest Bancorp and First Republic
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between PacWest and First is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding PacWest Bancorp and First Republic Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Republic Bank and PacWest Bancorp 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 PacWest Bancorp are associated (or correlated) with First Republic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Republic Bank has no effect on the direction of PacWest Bancorp i.e., PacWest Bancorp and First Republic go up and down completely randomly.
Pair Corralation between PacWest Bancorp and First Republic
Given the investment horizon of 90 days PacWest Bancorp is expected to generate 0.71 times more return on investment than First Republic. However, PacWest Bancorp is 1.42 times less risky than First Republic. It trades about 0.01 of its potential returns per unit of risk. First Republic Bank is currently generating about -0.11 per unit of risk. If you would invest 2,371 in PacWest Bancorp on August 27, 2024 and sell it today you would lose (1,317) from holding PacWest Bancorp or give up 55.55% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 98.73% |
| Values | Daily Returns |
PacWest Bancorp vs. First Republic Bank
Performance |
| Timeline |
| PacWest Bancorp |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| First Republic Bank |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
PacWest Bancorp and First Republic Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PacWest Bancorp and First Republic
The main advantage of trading using opposite PacWest Bancorp and First Republic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PacWest Bancorp position performs unexpectedly, First Republic 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 First Republic will offset losses from the drop in First Republic's long position.| PacWest Bancorp vs. Zions Bancorporation | PacWest Bancorp vs. KeyCorp | PacWest Bancorp vs. Comerica | PacWest Bancorp vs. First Horizon National |
| First Republic vs. Noble plc | First Republic vs. Nabors Industries | First Republic vs. Tenaris SA ADR | First Republic vs. The Cheesecake Factory |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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