Correlation Between Overseas Chinese and PacWest Bancorp

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

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

Diversification Opportunities for Overseas Chinese and PacWest Bancorp

0.43

Correlation Coefficient

Overseas Chinese  PacWest Bancorp

Very weak diversification

The 3 months correlation between Overseas and PacWest is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Overseas Chinese Banking and PacWest Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PacWest Bancorp and Overseas Chinese 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 Overseas Chinese Banking are associated (or correlated) with PacWest Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PacWest Bancorp has no effect on the direction of Overseas Chinese i.e., Overseas Chinese and PacWest Bancorp go up and down completely randomly.

Pair Corralation between Overseas Chinese and PacWest Bancorp

Assuming the 90 days horizon Overseas Chinese is expected to generate 1.39 times less return on investment than PacWest Bancorp. But when comparing it to its historical volatility, Overseas Chinese Banking is 9.66 times less risky than PacWest Bancorp. It trades about 0.08 of its potential returns per unit of risk. PacWest Bancorp is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,265  in PacWest Bancorp on September 26, 2024 and sell it today you would lose (1,211) from holding PacWest Bancorp or give up 53.47% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	27.82%
Values	Daily Returns

Overseas Chinese Banking  vs.  PacWest Bancorp

Overseas Chinese Banking

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Overseas Chinese Banking are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady technical indicators, Overseas Chinese may actually be approaching a critical reversion point that can send shares even higher in January 2025.

PacWest Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PacWest Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, PacWest Bancorp is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Overseas Chinese and PacWest Bancorp

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

The idea behind Overseas Chinese Banking and PacWest 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 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.