Correlation Between East West and Capital Bancorp

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

Diversification Opportunities for East West and Capital Bancorp

0.77

Correlation Coefficient

East West  Capital Bancorp

Poor diversification

The 3 months correlation between East and Capital is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding East West Bancorp and Capital Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Bancorp 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 Capital Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Bancorp has no effect on the direction of East West i.e., East West and Capital Bancorp go up and down completely randomly.

Pair Corralation between East West and Capital Bancorp

Given the investment horizon of 90 days East West Bancorp is expected to generate 1.01 times more return on investment than Capital Bancorp. However, East West is 1.01 times more volatile than Capital Bancorp. It trades about 0.08 of its potential returns per unit of risk. Capital Bancorp is currently generating about 0.05 per unit of risk. If you would invest  7,002  in East West Bancorp on September 24, 2024 and sell it today you would earn a total of  2,589  from holding East West Bancorp or generate 36.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.6%
Values	Daily Returns

East West Bancorp  vs.  Capital Bancorp

East West Bancorp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in East West Bancorp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting fundamental drivers, East West exhibited solid returns over the last few months and may actually be approaching a breakup point.

Capital Bancorp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Bancorp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Capital Bancorp disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with East West and Capital Bancorp

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

The idea behind East West Bancorp and Capital Bancorp 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.