Correlation Between Western Alliance and Bank of Hawaii

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

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

Diversification Opportunities for Western Alliance and Bank of Hawaii

-0.86

Correlation Coefficient

Western Alliance  Bank of Hawaii

Pay attention - limited upside

The 3 months correlation between Western and Bank is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding Western Alliance Bancorp. and Bank of Hawaii in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Hawaii and Western Alliance 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 Western Alliance Bancorporation are associated (or correlated) with Bank of Hawaii. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Hawaii has no effect on the direction of Western Alliance i.e., Western Alliance and Bank of Hawaii go up and down completely randomly.

Pair Corralation between Western Alliance and Bank of Hawaii

Assuming the 90 days trading horizon Western Alliance Bancorporation is expected to generate 0.67 times more return on investment than Bank of Hawaii. However, Western Alliance Bancorporation is 1.5 times less risky than Bank of Hawaii. It trades about 0.21 of its potential returns per unit of risk. Bank of Hawaii is currently generating about -0.07 per unit of risk. If you would invest  2,103  in Western Alliance Bancorporation on October 7, 2024 and sell it today you would earn a total of  137.00  from holding Western Alliance Bancorporation or generate 6.51% return on investment over 90 days.

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

Western Alliance Bancorp.  vs.  Bank of Hawaii

Western Alliance Ban

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Western Alliance Bancorporation are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Western Alliance sustained solid returns over the last few months and may actually be approaching a breakup point.

Bank of Hawaii

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank of Hawaii has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Preferred Stock's technical indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Western Alliance and Bank of Hawaii

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

The idea behind Western Alliance Bancorporation and Bank of Hawaii 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.