Correlation Between East West and BANCO

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

Diversification Opportunities for East West and BANCO

0.62

Correlation Coefficient

East West  BANCO

Poor diversification

The 3 months correlation between East and BANCO is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding East West Bancorp and BANCO SANTANDER SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BANCO SANTANDER SA 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 BANCO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BANCO SANTANDER SA has no effect on the direction of East West i.e., East West and BANCO go up and down completely randomly.

Pair Corralation between East West and BANCO

Given the investment horizon of 90 days East West Bancorp is expected to generate 2.81 times more return on investment than BANCO. However, East West is 2.81 times more volatile than BANCO SANTANDER SA. It trades about 0.1 of its potential returns per unit of risk. BANCO SANTANDER SA is currently generating about -0.18 per unit of risk. If you would invest  8,463  in East West Bancorp on October 10, 2024 and sell it today you would earn a total of  1,093  from holding East West Bancorp or generate 12.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	93.44%
Values	Daily Returns

East West Bancorp  vs.  BANCO SANTANDER SA

East West Bancorp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in East West Bancorp are ranked lower than 7 (%) 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.

BANCO SANTANDER SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BANCO SANTANDER SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for BANCO SANTANDER SA investors.

Pair Trading with East West and BANCO

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

The idea behind East West Bancorp and BANCO SANTANDER SA 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.