Correlation Between Westamerica Bancorporation and Eastern Bankshares

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

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

Diversification Opportunities for Westamerica Bancorporation and Eastern Bankshares

0.89

Correlation Coefficient

Westamerica Bancorporation  Eastern Bankshares

Very poor diversification

The 3 months correlation between Westamerica and Eastern is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Westamerica Bancorp. and Eastern Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern Bankshares and Westamerica 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 Westamerica Bancorporation are associated (or correlated) with Eastern Bankshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern Bankshares has no effect on the direction of Westamerica Bancorporation i.e., Westamerica Bancorporation and Eastern Bankshares go up and down completely randomly.

Pair Corralation between Westamerica Bancorporation and Eastern Bankshares

Given the investment horizon of 90 days Westamerica Bancorporation is expected to generate 0.9 times more return on investment than Eastern Bankshares. However, Westamerica Bancorporation is 1.11 times less risky than Eastern Bankshares. It trades about 0.09 of its potential returns per unit of risk. Eastern Bankshares is currently generating about 0.08 per unit of risk. If you would invest  5,135  in Westamerica Bancorporation on August 30, 2024 and sell it today you would earn a total of  619.00  from holding Westamerica Bancorporation or generate 12.05% return on investment over 90 days.

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

Westamerica Bancorp.  vs.  Eastern Bankshares

Westamerica Bancorporation

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Westamerica Bancorporation are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental drivers, Westamerica Bancorporation may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Eastern Bankshares

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Eastern Bankshares are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental drivers, Eastern Bankshares may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Westamerica Bancorporation and Eastern Bankshares

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

The idea behind Westamerica Bancorporation and Eastern Bankshares 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.