Correlation Between PacWest Bancorp and United Overseas

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

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

Diversification Opportunities for PacWest Bancorp and United Overseas

0.38

Correlation Coefficient

PacWest Bancorp  United Overseas

Weak diversification

The 3 months correlation between PacWest and United is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding PacWest Bancorp and United Overseas Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Overseas Bank 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 United Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Overseas Bank has no effect on the direction of PacWest Bancorp i.e., PacWest Bancorp and United Overseas go up and down completely randomly.

Pair Corralation between PacWest Bancorp and United Overseas

Given the investment horizon of 90 days PacWest Bancorp is expected to generate 11.34 times more return on investment than United Overseas. However, PacWest Bancorp is 11.34 times more volatile than United Overseas Bank. It trades about 0.01 of its potential returns per unit of risk. United Overseas Bank is currently generating about 0.06 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	Very Weak
Accuracy	27.82%
Values	Daily Returns

PacWest Bancorp  vs.  United Overseas Bank

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.

United Overseas Bank

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in United Overseas Bank are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, United Overseas is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with PacWest Bancorp and United Overseas

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

The idea behind PacWest Bancorp and United Overseas Bank 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.