Correlation Between East West and Cintas

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

Diversification Opportunities for East West and Cintas

0.63

Correlation Coefficient

East West  Cintas

Poor diversification

The 3 months correlation between East and Cintas is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding East West Bancorp and Cintas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cintas 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 Cintas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cintas has no effect on the direction of East West i.e., East West and Cintas go up and down completely randomly.

Pair Corralation between East West and Cintas

Given the investment horizon of 90 days East West is expected to generate 1.15 times less return on investment than Cintas. In addition to that, East West is 1.31 times more volatile than Cintas. It trades about 0.21 of its total potential returns per unit of risk. Cintas is currently generating about 0.31 per unit of volatility. If you would invest  18,513  in Cintas on October 26, 2024 and sell it today you would earn a total of  1,285  from holding Cintas or generate 6.94% return on investment over 90 days.

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

East West Bancorp  vs.  Cintas

East West Bancorp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in East West Bancorp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental drivers, East West is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Cintas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cintas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Cintas is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with East West and Cintas

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

The idea behind East West Bancorp and Cintas 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.