Correlation Between South Plains and Western New

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

By analyzing existing cross correlation between South Plains Financial and Western New England, you can compare the effects of market volatilities on South Plains and Western New 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 South Plains with a short position of Western New. Check out your portfolio center. Please also check ongoing floating volatility patterns of South Plains and Western New.

Diversification Opportunities for South Plains and Western New

0.4

Correlation Coefficient

South Plains  Western New

Very weak diversification

The 3 months correlation between South and Western is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding South Plains Financial and Western New England in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western New England and South Plains 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 South Plains Financial are associated (or correlated) with Western New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western New England has no effect on the direction of South Plains i.e., South Plains and Western New go up and down completely randomly.

Pair Corralation between South Plains and Western New

Given the investment horizon of 90 days South Plains Financial is expected to under-perform the Western New. In addition to that, South Plains is 1.13 times more volatile than Western New England. It trades about -0.02 of its total potential returns per unit of risk. Western New England is currently generating about 0.05 per unit of volatility. If you would invest  912.00  in Western New England on December 27, 2024 and sell it today you would earn a total of  31.00  from holding Western New England or generate 3.4% return on investment over 90 days.

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

South Plains Financial  vs.  Western New England

South Plains Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days South Plains Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, South Plains is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Western New England

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Western New England are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Western New is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with South Plains and Western New

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

The idea behind South Plains Financial and Western New England 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.