Correlation Between Royal Bank and East West
Can any of the company-specific risk be diversified away by investing in both Royal Bank and East West 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 Royal Bank and East West into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Royal Bank of and East West Bancorp, you can compare the effects of market volatilities on Royal Bank and East West 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 Royal Bank with a short position of East West. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royal Bank and East West.
Diversification Opportunities for Royal Bank and East West
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Royal and East is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Royal Bank of and East West Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on East West Bancorp and Royal Bank 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 Royal Bank of are associated (or correlated) with East West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of East West Bancorp has no effect on the direction of Royal Bank i.e., Royal Bank and East West go up and down completely randomly.
Pair Corralation between Royal Bank and East West
Allowing for the 90-day total investment horizon Royal Bank is expected to generate 2.48 times less return on investment than East West. But when comparing it to its historical volatility, Royal Bank of is 2.09 times less risky than East West. It trades about 0.02 of its potential returns per unit of risk. East West Bancorp is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 7,062 in East West Bancorp on January 25, 2024 and sell it today you would earn a total of 468.00 from holding East West Bancorp or generate 6.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Royal Bank of vs. East West Bancorp
Performance |
| Timeline |
| Royal Bank |
| East West Bancorp |
Royal Bank and East West Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Royal Bank and East West
The main advantage of trading using opposite Royal Bank and East West positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royal Bank position performs unexpectedly, East West 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 East West will offset losses from the drop in East West's long position.| Royal Bank vs. Canadian Imperial Bank | Royal Bank vs. Bank of Montreal | Royal Bank vs. Bank of Nova | Royal Bank vs. Bank of America |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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