Correlation Between East West and SLR Investment

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

Diversification Opportunities for East West and SLR Investment

0.65

Correlation Coefficient

East West  SLR Investment

Poor diversification

The 3 months correlation between East and SLR is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding East West Bancorp and SLR Investment Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SLR 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 SLR Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SLR Investment Corp has no effect on the direction of East West i.e., East West and SLR Investment go up and down completely randomly.

Pair Corralation between East West and SLR Investment

Given the investment horizon of 90 days East West Bancorp is expected to under-perform the SLR Investment. In addition to that, East West is 2.0 times more volatile than SLR Investment Corp. It trades about -0.26 of its total potential returns per unit of risk. SLR Investment Corp is currently generating about -0.05 per unit of volatility. If you would invest  1,645  in SLR Investment Corp on October 11, 2024 and sell it today you would lose (14.00) from holding SLR Investment Corp or give up 0.85% 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.  SLR Investment Corp

East West Bancorp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in East West Bancorp are ranked lower than 5 (%) 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.

SLR Investment Corp

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SLR Investment Corp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, SLR Investment may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with East West and SLR Investment

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

The idea behind East West Bancorp and SLR 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.