Correlation Between East West and RELIANCE

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

Diversification Opportunities for East West and RELIANCE

-0.61

Correlation Coefficient

East West  RELIANCE

Excellent diversification

The 3 months correlation between East and RELIANCE is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding East West Bancorp and RELIANCE STL ALUM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RELIANCE STL ALUM 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 RELIANCE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RELIANCE STL ALUM has no effect on the direction of East West i.e., East West and RELIANCE go up and down completely randomly.

Pair Corralation between East West and RELIANCE

Given the investment horizon of 90 days East West Bancorp is expected to under-perform the RELIANCE. But the stock apears to be less risky and, when comparing its historical volatility, East West Bancorp is 1.19 times less risky than RELIANCE. The stock trades about -0.06 of its potential returns per unit of risk. The RELIANCE STL ALUM is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  10,818  in RELIANCE STL ALUM on December 22, 2024 and sell it today you would lose (156.00) from holding RELIANCE STL ALUM or give up 1.44% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	23.33%
Values	Daily Returns

East West Bancorp  vs.  RELIANCE STL ALUM

East West Bancorp

Risk-Adjusted Performance

Very Weak

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

RELIANCE STL ALUM

Risk-Adjusted Performance

Very Weak

Over the last 90 days RELIANCE STL ALUM has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, RELIANCE is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with East West and RELIANCE

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

The idea behind East West Bancorp and RELIANCE STL ALUM 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.