Correlation Between Zions Bancorporation and Westamerica Bancorporation

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

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

Diversification Opportunities for Zions Bancorporation and Westamerica Bancorporation

0.7

Correlation Coefficient

Zions Bancorporation  Westamerica Bancorporation

Poor diversification

The 3 months correlation between Zions and Westamerica is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Zions Bancorp. and Westamerica Bancorp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westamerica Bancorporation and Zions Bancorporation 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 Zions Bancorporation are associated (or correlated) with Westamerica Bancorporation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westamerica Bancorporation has no effect on the direction of Zions Bancorporation i.e., Zions Bancorporation and Westamerica Bancorporation go up and down completely randomly.

Pair Corralation between Zions Bancorporation and Westamerica Bancorporation

Given the investment horizon of 90 days Zions Bancorporation is expected to generate 1.21 times more return on investment than Westamerica Bancorporation. However, Zions Bancorporation is 1.21 times more volatile than Westamerica Bancorporation. It trades about 0.06 of its potential returns per unit of risk. Westamerica Bancorporation is currently generating about 0.03 per unit of risk. If you would invest  4,025  in Zions Bancorporation on December 4, 2024 and sell it today you would earn a total of  1,271  from holding Zions Bancorporation or generate 31.58% return on investment over 90 days.

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

Zions Bancorp.  vs.  Westamerica Bancorp.

Zions Bancorporation

Risk-Adjusted Performance

Very Weak

Over the last 90 days Zions Bancorporation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Westamerica Bancorporation

Risk-Adjusted Performance

Very Weak

Over the last 90 days Westamerica Bancorporation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's fundamental drivers 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 Zions Bancorporation and Westamerica Bancorporation

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

The idea behind Zions Bancorporation and Westamerica Bancorporation 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.