Correlation Between East West and HomeTrust Bancshares

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

Diversification Opportunities for East West and HomeTrust Bancshares

0.77

Correlation Coefficient

East West  HomeTrust Bancshares

Poor diversification

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

Pair Corralation between East West and HomeTrust Bancshares

Given the investment horizon of 90 days East West Bancorp is expected to under-perform the HomeTrust Bancshares. But the stock apears to be less risky and, when comparing its historical volatility, East West Bancorp is 1.05 times less risky than HomeTrust Bancshares. The stock trades about -0.45 of its potential returns per unit of risk. The HomeTrust Bancshares is currently generating about -0.35 of returns per unit of risk over similar time horizon. If you would invest  3,827  in HomeTrust Bancshares on September 25, 2024 and sell it today you would lose (414.00) from holding HomeTrust Bancshares or give up 10.82% of portfolio value over 90 days.

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

East West Bancorp  vs.  HomeTrust Bancshares

East West Bancorp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in East West Bancorp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent fundamental drivers, East West exhibited solid returns over the last few months and may actually be approaching a breakup point.

HomeTrust Bancshares

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HomeTrust Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, HomeTrust Bancshares is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with East West and HomeTrust Bancshares

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

The idea behind East West Bancorp and HomeTrust Bancshares 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.