Correlation Between East West and Summit Bank

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

Diversification Opportunities for East West and Summit Bank

0.07

Correlation Coefficient

East West  Summit Bank

Significant diversification

The 3 months correlation between East and Summit is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding East West Bancorp and Summit Bank Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Bank Group 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 Summit Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Bank Group has no effect on the direction of East West i.e., East West and Summit Bank go up and down completely randomly.

Pair Corralation between East West and Summit Bank

Given the investment horizon of 90 days East West is expected to generate 1.65 times less return on investment than Summit Bank. But when comparing it to its historical volatility, East West Bancorp is 1.72 times less risky than Summit Bank. It trades about 0.05 of its potential returns per unit of risk. Summit Bank Group is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,300  in Summit Bank Group on October 27, 2024 and sell it today you would earn a total of  95.00  from holding Summit Bank Group or generate 7.31% 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.  Summit Bank Group

East West Bancorp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in East West Bancorp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental drivers, East West may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Summit Bank Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Bank Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very weak forward-looking signals, Summit Bank may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with East West and Summit Bank

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

The idea behind East West Bancorp and Summit Bank Group 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.