Correlation Between Western Alliance and Itau Unibanco

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

Diversification Opportunities for Western Alliance and Itau Unibanco

-0.6

Correlation Coefficient

Western Alliance  Itau Unibanco

Excellent diversification

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

Pair Corralation between Western Alliance and Itau Unibanco

Considering the 90-day investment horizon Western Alliance Bancorporation is expected to generate 2.68 times more return on investment than Itau Unibanco. However, Western Alliance is 2.68 times more volatile than Itau Unibanco Banco. It trades about 0.04 of its potential returns per unit of risk. Itau Unibanco Banco is currently generating about 0.03 per unit of risk. If you would invest  5,645  in Western Alliance Bancorporation on September 19, 2024 and sell it today you would earn a total of  2,729  from holding Western Alliance Bancorporation or generate 48.34% return on investment over 90 days.

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

Western Alliance Bancorp.  vs.  Itau Unibanco Banco

Western Alliance Ban

Risk-Adjusted Performance

0 of 100

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 recent stock price mess, may contribute to short-term losses for the institutional investors.

Itau Unibanco Banco

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Itau Unibanco Banco has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Western Alliance and Itau Unibanco

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

The idea behind Western Alliance Bancorporation and Itau Unibanco Banco 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.