Correlation Between East West and Banco Bilbao

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

Diversification Opportunities for East West and Banco Bilbao

-0.55

Correlation Coefficient

East West  Banco Bilbao

Excellent diversification

The 3 months correlation between East and Banco is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding East West Bancorp and Banco Bilbao Viscaya in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco Bilbao Viscaya 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 Banco Bilbao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco Bilbao Viscaya has no effect on the direction of East West i.e., East West and Banco Bilbao go up and down completely randomly.

Pair Corralation between East West and Banco Bilbao

Given the investment horizon of 90 days East West Bancorp is expected to generate 1.08 times more return on investment than Banco Bilbao. However, East West is 1.08 times more volatile than Banco Bilbao Viscaya. It trades about 0.22 of its potential returns per unit of risk. Banco Bilbao Viscaya is currently generating about -0.02 per unit of risk. If you would invest  8,234  in East West Bancorp on September 3, 2024 and sell it today you would earn a total of  2,734  from holding East West Bancorp or generate 33.2% return on investment over 90 days.

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

East West Bancorp  vs.  Banco Bilbao Viscaya

East West Bancorp

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in East West Bancorp are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile fundamental drivers, East West exhibited solid returns over the last few months and may actually be approaching a breakup point.

Banco Bilbao Viscaya

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Banco Bilbao Viscaya has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Banco Bilbao is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with East West and Banco Bilbao

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

The idea behind East West Bancorp and Banco Bilbao Viscaya 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.