Correlation Between East West and Bank of America
Can any of the company-specific risk be diversified away by investing in both East West and Bank of America 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 East West and Bank of America into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between East West Bancorp and Bank of America, you can compare the effects of market volatilities on East West and Bank of America 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 East West with a short position of Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of East West and Bank of America.
Diversification Opportunities for East West and Bank of America
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between East and Bank is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding East West Bancorp and Bank of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of America and East West 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 East West Bancorp are associated (or correlated) with Bank of America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of America has no effect on the direction of East West i.e., East West and Bank of America go up and down completely randomly.
Pair Corralation between East West and Bank of America
Given the investment horizon of 90 days East West Bancorp is expected to under-perform the Bank of America. In addition to that, East West is 1.09 times more volatile than Bank of America. It trades about -0.11 of its total potential returns per unit of risk. Bank of America is currently generating about -0.06 per unit of volatility. If you would invest 3,603 in Bank of America on January 19, 2024 and sell it today you would lose (80.00) from holding Bank of America or give up 2.22% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
East West Bancorp vs. Bank of America
Performance |
| Timeline |
| East West Bancorp |
| Bank of America |
East West and Bank of America Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with East West and Bank of America
The main advantage of trading using opposite East West and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if East West position performs unexpectedly, Bank of America 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 Bank of America will offset losses from the drop in Bank of America's long position.| East West vs. Barclays PLC ADR | East West vs. UBS Group AG | East West vs. ING Group NV | East West vs. Citigroup |
| Bank of America vs. Citigroup | Bank of America vs. Wells Fargo | Bank of America vs. Toronto Dominion Bank | Bank of America vs. Royal Bank of |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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