Correlation Between East West and Converge Information

Can any of the company-specific risk be diversified away by investing in both East West and Converge Information 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 Converge Information into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between East West Banking and Converge Information Communications, you can compare the effects of market volatilities on East West and Converge Information 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 Converge Information. Check out your portfolio center. Please also check ongoing floating volatility patterns of East West and Converge Information.

Diversification Opportunities for East West and Converge Information

0.41

Correlation Coefficient

East West  Converge Information

Very weak diversification

The 3 months correlation between East and Converge is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding East West Banking and Converge Information Communica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Converge Information 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 Banking are associated (or correlated) with Converge Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Converge Information has no effect on the direction of East West i.e., East West and Converge Information go up and down completely randomly.

Pair Corralation between East West and Converge Information

Assuming the 90 days trading horizon East West is expected to generate 1.08 times less return on investment than Converge Information. But when comparing it to its historical volatility, East West Banking is 1.94 times less risky than Converge Information. It trades about 0.13 of its potential returns per unit of risk. Converge Information Communications is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,494  in Converge Information Communications on September 2, 2024 and sell it today you would earn a total of  146.00  from holding Converge Information Communications or generate 9.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

East West Banking  vs.  Converge Information Communica

East West Banking

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in East West Banking are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, East West may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Converge Information

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Converge Information Communications are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Converge Information may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with East West and Converge Information

The main advantage of trading using opposite East West and Converge Information positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if East West position performs unexpectedly, Converge Information 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 Converge Information will offset losses from the drop in Converge Information's long position.

The idea behind East West Banking and Converge Information Communications pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.