Correlation Between East West and Sachem Capital

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

Diversification Opportunities for East West and Sachem Capital

0.25

Correlation Coefficient

East West  Sachem Capital

Modest diversification

The 3 months correlation between East and Sachem is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding East West Bancorp and Sachem Capital Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sachem Capital 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 Sachem Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sachem Capital Corp has no effect on the direction of East West i.e., East West and Sachem Capital go up and down completely randomly.

Pair Corralation between East West and Sachem Capital

Given the investment horizon of 90 days East West Bancorp is expected to generate 9.29 times more return on investment than Sachem Capital. However, East West is 9.29 times more volatile than Sachem Capital Corp. It trades about 0.09 of its potential returns per unit of risk. Sachem Capital Corp is currently generating about 0.18 per unit of risk. If you would invest  7,135  in East West Bancorp on October 9, 2024 and sell it today you would earn a total of  2,421  from holding East West Bancorp or generate 33.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.31%
Values	Daily Returns

East West Bancorp  vs.  Sachem Capital Corp

East West Bancorp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in East West Bancorp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental drivers, East West exhibited solid returns over the last few months and may actually be approaching a breakup point.

Sachem Capital Corp

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Sachem Capital Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Sachem Capital is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with East West and Sachem Capital

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

The idea behind East West Bancorp and Sachem Capital 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.