Correlation Between PacWest Bancorp and Overseas Chinese

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

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

Diversification Opportunities for PacWest Bancorp and Overseas Chinese

0.43

Correlation Coefficient

PacWest Bancorp  Overseas Chinese

Very weak diversification

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

Pair Corralation between PacWest Bancorp and Overseas Chinese

Given the investment horizon of 90 days PacWest Bancorp is expected to generate 9.66 times more return on investment than Overseas Chinese. However, PacWest Bancorp is 9.66 times more volatile than Overseas Chinese Banking. It trades about 0.01 of its potential returns per unit of risk. Overseas Chinese Banking is currently generating about 0.08 per unit of risk. 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

PacWest Bancorp  vs.  Overseas Chinese Banking

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.

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.

Pair Trading with PacWest Bancorp and Overseas Chinese

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

The idea behind PacWest Bancorp and Overseas Chinese Banking 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.