Correlation Between Pacific West and Mission Valley

Can any of the company-specific risk be diversified away by investing in both Pacific West and Mission Valley 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 Mission Valley 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 Mission Valley Bancorp, you can compare the effects of market volatilities on Pacific West and Mission Valley 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 Mission Valley. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pacific West and Mission Valley.

Diversification Opportunities for Pacific West and Mission Valley

0.69

Correlation Coefficient

Pacific West  Mission Valley

Poor diversification

The 3 months correlation between Pacific and Mission is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Pacific West Bancorp and Mission Valley Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mission Valley Bancorp 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 Mission Valley. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mission Valley Bancorp has no effect on the direction of Pacific West i.e., Pacific West and Mission Valley go up and down completely randomly.

Pair Corralation between Pacific West and Mission Valley

Given the investment horizon of 90 days Pacific West Bancorp is expected to under-perform the Mission Valley. In addition to that, Pacific West is 8.43 times more volatile than Mission Valley Bancorp. It trades about -0.07 of its total potential returns per unit of risk. Mission Valley Bancorp is currently generating about 0.06 per unit of volatility. If you would invest  1,670  in Mission Valley Bancorp on October 11, 2024 and sell it today you would earn a total of  10.00  from holding Mission Valley Bancorp or generate 0.6% return on investment over 90 days.

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

Pacific West Bancorp  vs.  Mission Valley Bancorp

Pacific West Bancorp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pacific West Bancorp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, Pacific West is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Mission Valley Bancorp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mission Valley Bancorp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile essential indicators, Mission Valley may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Pacific West and Mission Valley

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

The idea behind Pacific West Bancorp and Mission Valley 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.