Correlation Between RH and East West

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

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

Diversification Opportunities for RH and East West

0.83

Correlation Coefficient

RH  East West

Very poor diversification

The 3 months correlation between RH and East is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding RH and East West Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on East West Bancorp and RH 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 RH are associated (or correlated) with East West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of East West Bancorp has no effect on the direction of RH i.e., RH and East West go up and down completely randomly.

Pair Corralation between RH and East West

Allowing for the 90-day total investment horizon RH is expected to under-perform the East West. In addition to that, RH is 2.03 times more volatile than East West Bancorp. It trades about -0.28 of its total potential returns per unit of risk. East West Bancorp is currently generating about -0.12 per unit of volatility. If you would invest  9,960  in East West Bancorp on December 17, 2024 and sell it today you would lose (1,163) from holding East West Bancorp or give up 11.68% of portfolio value over 90 days.

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

RH  vs.  East West Bancorp

RH

Risk-Adjusted Performance

Very Weak

Over the last 90 days RH has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

East West Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days East West Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's fundamental drivers remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with RH and East West

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

The idea behind RH and East West 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.