Correlation Between Truist Financial and Westamerica Bancorporation

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

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

Diversification Opportunities for Truist Financial and Westamerica Bancorporation

-0.6

Correlation Coefficient

Truist Financial  Westamerica Bancorporation

Excellent diversification

The 3 months correlation between Truist and Westamerica is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Truist Financial and Westamerica Bancorp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westamerica Bancorporation and Truist Financial 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 Truist Financial are associated (or correlated) with Westamerica Bancorporation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westamerica Bancorporation has no effect on the direction of Truist Financial i.e., Truist Financial and Westamerica Bancorporation go up and down completely randomly.

Pair Corralation between Truist Financial and Westamerica Bancorporation

Assuming the 90 days trading horizon Truist Financial is expected to under-perform the Westamerica Bancorporation. But the preferred stock apears to be less risky and, when comparing its historical volatility, Truist Financial is 2.48 times less risky than Westamerica Bancorporation. The preferred stock trades about 0.0 of its potential returns per unit of risk. The Westamerica Bancorporation is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  5,100  in Westamerica Bancorporation on September 2, 2024 and sell it today you would earn a total of  623.00  from holding Westamerica Bancorporation or generate 12.22% return on investment over 90 days.

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

Truist Financial  vs.  Westamerica Bancorp.

Truist Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Truist Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Truist Financial is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Westamerica Bancorporation

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Westamerica Bancorporation are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting fundamental drivers, Westamerica Bancorporation exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Truist Financial and Westamerica Bancorporation

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

The idea behind Truist Financial and Westamerica Bancorporation 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.

Check out your portfolio center.

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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.