Correlation Between Home Federal and East West

Can any of the company-specific risk be diversified away by investing in both Home Federal and East West 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 Home Federal and East West into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Home Federal Bancorp and East West Bancorp, you can compare the effects of market volatilities on Home Federal and East West 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 Home Federal with a short position of East West. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Federal and East West.

Diversification Opportunities for Home Federal and East West

-0.1

Correlation Coefficient

Home Federal  East West

Good diversification

The 3 months correlation between Home and East is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Home Federal Bancorp and East West Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on East West Bancorp and Home Federal 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 Home Federal Bancorp are associated (or correlated) with East West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of East West Bancorp has no effect on the direction of Home Federal i.e., Home Federal and East West go up and down completely randomly.

Pair Corralation between Home Federal and East West

Given the investment horizon of 90 days Home Federal is expected to generate 2.48 times less return on investment than East West. In addition to that, Home Federal is 1.0 times more volatile than East West Bancorp. It trades about 0.03 of its total potential returns per unit of risk. East West Bancorp is currently generating about 0.07 per unit of volatility. If you would invest  8,783  in East West Bancorp on October 11, 2024 and sell it today you would earn a total of  752.00  from holding East West Bancorp or generate 8.56% return on investment over 90 days.

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

Home Federal Bancorp  vs.  East West Bancorp

Home Federal Bancorp

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Home Federal Bancorp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, Home Federal is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

East West Bancorp

Risk-Adjusted Performance

5 of 100

OK

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.

Pair Trading with Home Federal and East West

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

The idea behind Home Federal Bancorp and East West Bancorp 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.