Correlation Between Pacific West and CECO Environmental

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

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

Diversification Opportunities for Pacific West and CECO Environmental

0.34

Correlation Coefficient

Pacific West  CECO Environmental

Weak diversification

The 3 months correlation between Pacific and CECO is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Pacific West Bancorp and CECO Environmental Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CECO Environmental Corp and Pacific West 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 Pacific West Bancorp are associated (or correlated) with CECO Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CECO Environmental Corp has no effect on the direction of Pacific West i.e., Pacific West and CECO Environmental go up and down completely randomly.

Pair Corralation between Pacific West and CECO Environmental

Given the investment horizon of 90 days Pacific West Bancorp is expected to generate 0.91 times more return on investment than CECO Environmental. However, Pacific West Bancorp is 1.1 times less risky than CECO Environmental. It trades about -0.05 of its potential returns per unit of risk. CECO Environmental Corp is currently generating about -0.13 per unit of risk. If you would invest  1,237  in Pacific West Bancorp on December 19, 2024 and sell it today you would lose (102.00) from holding Pacific West Bancorp or give up 8.25% of portfolio value over 90 days.

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

Pacific West Bancorp  vs.  CECO Environmental Corp

Pacific West Bancorp

Risk-Adjusted Performance

Very Weak

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

CECO Environmental Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days CECO Environmental Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Pacific West and CECO Environmental

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

The idea behind Pacific West Bancorp and CECO Environmental Corp 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.