Correlation Between Western Alliance and CF Financial

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

Diversification Opportunities for Western Alliance and CF Financial

0.62

Correlation Coefficient

Western Alliance  CF Financial

Poor diversification

The 3 months correlation between Western and CFFI is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Western Alliance Bancorp. and CF Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CF Financial 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 CF Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CF Financial has no effect on the direction of Western Alliance i.e., Western Alliance and CF Financial go up and down completely randomly.

Pair Corralation between Western Alliance and CF Financial

Considering the 90-day investment horizon Western Alliance Bancorporation is expected to under-perform the CF Financial. But the stock apears to be less risky and, when comparing its historical volatility, Western Alliance Bancorporation is 1.12 times less risky than CF Financial. The stock trades about -0.01 of its potential returns per unit of risk. The CF Financial is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  7,092  in CF Financial on December 28, 2024 and sell it today you would earn a total of  94.00  from holding CF Financial or generate 1.33% return on investment over 90 days.

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

Western Alliance Bancorp.  vs.  CF Financial

Western Alliance Ban

Risk-Adjusted Performance

Very Weak

Over the last 90 days Western Alliance Bancorporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Western Alliance is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

CF Financial

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CF Financial are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical and fundamental indicators, CF Financial is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Western Alliance and CF Financial

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

The idea behind Western Alliance Bancorporation and CF Financial 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.