Correlation Between Western Alliance and First Horizon

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

Diversification Opportunities for Western Alliance and First Horizon

0.78

Correlation Coefficient

Western Alliance  First Horizon

Poor diversification

The 3 months correlation between Western and First is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Western Alliance Bancorp. and First Horizon National in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Horizon National 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 First Horizon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Horizon National has no effect on the direction of Western Alliance i.e., Western Alliance and First Horizon go up and down completely randomly.

Pair Corralation between Western Alliance and First Horizon

Considering the 90-day investment horizon Western Alliance is expected to generate 1.64 times less return on investment than First Horizon. In addition to that, Western Alliance is 1.09 times more volatile than First Horizon National. It trades about 0.09 of its total potential returns per unit of risk. First Horizon National is currently generating about 0.16 per unit of volatility. If you would invest  1,643  in First Horizon National on August 30, 2024 and sell it today you would earn a total of  466.00  from holding First Horizon National or generate 28.36% 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.  First Horizon National

Western Alliance Ban

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Alliance Bancorporation are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating basic indicators, Western Alliance disclosed solid returns over the last few months and may actually be approaching a breakup point.

First Horizon National

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Horizon National are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal technical indicators, First Horizon displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Alliance and First Horizon

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

The idea behind Western Alliance Bancorporation and First Horizon National 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.