Correlation Between Nu Holdings and Western Alliance

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

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

Diversification Opportunities for Nu Holdings and Western Alliance

0.46

Correlation Coefficient

Nu Holdings  Western Alliance

Very weak diversification

The 3 months correlation between Nu Holdings and Western is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Nu Holdings 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 Nu Holdings 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 Nu Holdings 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 Nu Holdings i.e., Nu Holdings and Western Alliance go up and down completely randomly.

Pair Corralation between Nu Holdings and Western Alliance

Allowing for the 90-day total investment horizon Nu Holdings is expected to generate 5.04 times more return on investment than Western Alliance. However, Nu Holdings is 5.04 times more volatile than Western Alliance Bancorporation. It trades about 0.07 of its potential returns per unit of risk. Western Alliance Bancorporation is currently generating about 0.06 per unit of risk. If you would invest  1,024  in Nu Holdings on December 23, 2024 and sell it today you would earn a total of  135.00  from holding Nu Holdings or generate 13.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Nu Holdings  vs.  Western Alliance Bancorp.

Nu Holdings

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nu Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Nu Holdings unveiled solid returns over the last few months and may actually be approaching a breakup point.

Western Alliance Ban

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Western Alliance Bancorporation are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, Western Alliance is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Nu Holdings and Western Alliance

The main advantage of trading using opposite Nu Holdings and Western Alliance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nu Holdings 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 Nu Holdings 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.