Correlation Between East West and Apartment Investment

Can any of the company-specific risk be diversified away by investing in both East West and Apartment Investment 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 Apartment Investment 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 Apartment Investment and, you can compare the effects of market volatilities on East West and Apartment Investment 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 Apartment Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of East West and Apartment Investment.

Diversification Opportunities for East West and Apartment Investment

0.29

Correlation Coefficient

East West  Apartment Investment

Modest diversification

The 3 months correlation between East and Apartment is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding East West Bancorp and Apartment Investment and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Apartment Investment and 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 Apartment Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Apartment Investment and has no effect on the direction of East West i.e., East West and Apartment Investment go up and down completely randomly.

Pair Corralation between East West and Apartment Investment

Given the investment horizon of 90 days East West Bancorp is expected to under-perform the Apartment Investment. But the stock apears to be less risky and, when comparing its historical volatility, East West Bancorp is 1.68 times less risky than Apartment Investment. The stock trades about -0.26 of its potential returns per unit of risk. The Apartment Investment and is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  873.00  in Apartment Investment and on October 11, 2024 and sell it today you would lose (12.00) from holding Apartment Investment and or give up 1.37% of portfolio value over 90 days.

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

East West Bancorp  vs.  Apartment Investment and

East West Bancorp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in East West Bancorp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental drivers, East West may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Apartment Investment and

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Apartment Investment and has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable forward indicators, Apartment Investment is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with East West and Apartment Investment

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

The idea behind East West Bancorp and Apartment Investment and 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.

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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.