Correlation Between Investec and Western Alliance

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

By analyzing existing cross correlation between Investec Ltd ADR and Western Alliance Bancorporation, you can compare the effects of market volatilities on Investec and Western Alliance 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 Investec with a short position of Western Alliance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Investec and Western Alliance.

Diversification Opportunities for Investec and Western Alliance

-0.15

Correlation Coefficient

Investec  Western Alliance

Good diversification

The 3 months correlation between Investec and Western is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Investec Ltd ADR and Western Alliance Bancorp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Alliance Ban and Investec 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 Investec Ltd ADR are associated (or correlated) with Western Alliance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Alliance Ban has no effect on the direction of Investec i.e., Investec and Western Alliance go up and down completely randomly.

Pair Corralation between Investec and Western Alliance

Assuming the 90 days horizon Investec Ltd ADR is expected to generate 11.88 times more return on investment than Western Alliance. However, Investec is 11.88 times more volatile than Western Alliance Bancorporation. It trades about 0.03 of its potential returns per unit of risk. Western Alliance Bancorporation is currently generating about 0.08 per unit of risk. If you would invest  1,670  in Investec Ltd ADR on October 4, 2024 and sell it today you would earn a total of  0.00  from holding Investec Ltd ADR or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Investec Ltd ADR  vs.  Western Alliance Bancorp.

Investec ADR

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Investec Ltd ADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting technical and fundamental indicators, Investec showed solid returns over the last few months and may actually be approaching a breakup point.

Western Alliance Ban

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Alliance Bancorporation are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Western Alliance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Investec and Western Alliance

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

The idea behind Investec Ltd ADR and Western Alliance Bancorporation 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.