Correlation Between Pacific West and Summit Bank

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

Diversification Opportunities for Pacific West and Summit Bank

0.67

Correlation Coefficient

Pacific West  Summit Bank

Poor diversification

The 3 months correlation between Pacific and Summit is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Pacific West Bancorp and Summit Bank Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Bank Group 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 Summit Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Bank Group has no effect on the direction of Pacific West i.e., Pacific West and Summit Bank go up and down completely randomly.

Pair Corralation between Pacific West and Summit Bank

Given the investment horizon of 90 days Pacific West Bancorp is expected to under-perform the Summit Bank. But the pink sheet apears to be less risky and, when comparing its historical volatility, Pacific West Bancorp is 1.47 times less risky than Summit Bank. The pink sheet trades about -0.07 of its potential returns per unit of risk. The Summit Bank Group is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,430  in Summit Bank Group on October 11, 2024 and sell it today you would lose (20.00) from holding Summit Bank Group or give up 1.4% of portfolio value over 90 days.

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

Pacific West Bancorp  vs.  Summit Bank Group

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.

Summit Bank Group

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Bank Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very weak forward-looking signals, Summit Bank may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Pacific West and Summit Bank

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

The idea behind Pacific West Bancorp and Summit Bank Group 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.