Correlation Between East West and Fidus Investment

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

Diversification Opportunities for East West and Fidus Investment

0.1

Correlation Coefficient

East West  Fidus Investment

Average diversification

The 3 months correlation between East and Fidus is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding East West Bancorp and Fidus Investment Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidus Investment Corp 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 Fidus Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidus Investment Corp has no effect on the direction of East West i.e., East West and Fidus Investment go up and down completely randomly.

Pair Corralation between East West and Fidus Investment

Given the investment horizon of 90 days East West Bancorp is expected to under-perform the Fidus Investment. In addition to that, East West is 1.64 times more volatile than Fidus Investment Corp. It trades about -0.07 of its total potential returns per unit of risk. Fidus Investment Corp is currently generating about 0.08 per unit of volatility. If you would invest  2,028  in Fidus Investment Corp on December 19, 2024 and sell it today you would earn a total of  91.00  from holding Fidus Investment Corp or generate 4.49% return on investment over 90 days.

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

East West Bancorp  vs.  Fidus Investment Corp

East West Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days East West Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's fundamental drivers remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Fidus Investment Corp

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fidus Investment Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Fidus Investment is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with East West and Fidus Investment

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

The idea behind East West Bancorp and Fidus Investment Corp 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.