Correlation Between NYSE Composite and Western Alliance

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

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

Diversification Opportunities for NYSE Composite and Western Alliance

0.02

Correlation Coefficient

NYSE Composite  Western Alliance

Significant diversification

The 3 months correlation between NYSE and Western is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite 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 NYSE Composite 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 NYSE Composite 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 NYSE Composite i.e., NYSE Composite and Western Alliance go up and down completely randomly.

Pair Corralation between NYSE Composite and Western Alliance

Assuming the 90 days trading horizon NYSE Composite is expected to under-perform the Western Alliance. But the index apears to be less risky and, when comparing its historical volatility, NYSE Composite is 1.17 times less risky than Western Alliance. The index trades about -0.11 of its potential returns per unit of risk. The Western Alliance Bancorporation is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  2,103  in Western Alliance Bancorporation on October 7, 2024 and sell it today you would earn a total of  137.00  from holding Western Alliance Bancorporation or generate 6.51% return on investment over 90 days.

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

NYSE Composite  vs.  Western Alliance Bancorp.

Pair Trading with NYSE Composite and Western Alliance

The main advantage of trading using opposite NYSE Composite and Western Alliance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite 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 NYSE Composite 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 Stocks Directory module to find actively traded stocks across global markets.