Correlation Between Nuvalent and East West

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

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

Diversification Opportunities for Nuvalent and East West

0.76

Correlation Coefficient

Nuvalent  East West

Poor diversification

The 3 months correlation between Nuvalent and East is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Nuvalent 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 Nuvalent 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 Nuvalent 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 Nuvalent i.e., Nuvalent and East West go up and down completely randomly.

Pair Corralation between Nuvalent and East West

Given the investment horizon of 90 days Nuvalent is expected to under-perform the East West. In addition to that, Nuvalent is 1.69 times more volatile than East West Bancorp. It trades about -0.04 of its total potential returns per unit of risk. East West Bancorp is currently generating about -0.06 per unit of volatility. If you would invest  9,432  in East West Bancorp on December 19, 2024 and sell it today you would lose (613.00) from holding East West Bancorp or give up 6.5% of portfolio value over 90 days.

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

Nuvalent  vs.  East West Bancorp

Nuvalent

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nuvalent has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

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.

Pair Trading with Nuvalent and East West

The main advantage of trading using opposite Nuvalent and East West positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nuvalent 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 Nuvalent 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.