Correlation Between Western Alliance and PNC Financial

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

Diversification Opportunities for Western Alliance and PNC Financial

0.87

Correlation Coefficient

Western Alliance  PNC Financial

Very poor diversification

The 3 months correlation between Western and PNC is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Western Alliance Bancorp. and PNC Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PNC Financial Services 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 PNC Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PNC Financial Services has no effect on the direction of Western Alliance i.e., Western Alliance and PNC Financial go up and down completely randomly.

Pair Corralation between Western Alliance and PNC Financial

Considering the 90-day investment horizon Western Alliance Bancorporation is expected to generate 1.74 times more return on investment than PNC Financial. However, Western Alliance is 1.74 times more volatile than PNC Financial Services. It trades about -0.03 of its potential returns per unit of risk. PNC Financial Services is currently generating about -0.1 per unit of risk. If you would invest  8,332  in Western Alliance Bancorporation on December 27, 2024 and sell it today you would lose (544.00) from holding Western Alliance Bancorporation or give up 6.53% of portfolio value over 90 days.

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

Western Alliance Bancorp.  vs.  PNC Financial Services

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

PNC Financial Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days PNC Financial Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Western Alliance and PNC Financial

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

The idea behind Western Alliance Bancorporation and PNC Financial Services 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.