Correlation Between Westamerica Bancorporation and OceanFirst Financial

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

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

Diversification Opportunities for Westamerica Bancorporation and OceanFirst Financial

0.95

Correlation Coefficient

Westamerica Bancorporation  OceanFirst Financial

Almost no diversification

The 3 months correlation between Westamerica and OceanFirst is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Westamerica Bancorp. and OceanFirst Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OceanFirst Financial Corp 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 OceanFirst Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OceanFirst Financial Corp has no effect on the direction of Westamerica Bancorporation i.e., Westamerica Bancorporation and OceanFirst Financial go up and down completely randomly.

Pair Corralation between Westamerica Bancorporation and OceanFirst Financial

Given the investment horizon of 90 days Westamerica Bancorporation is expected to generate 1.07 times less return on investment than OceanFirst Financial. But when comparing it to its historical volatility, Westamerica Bancorporation is 1.39 times less risky than OceanFirst Financial. It trades about 0.11 of its potential returns per unit of risk. OceanFirst Financial Corp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,749  in OceanFirst Financial Corp on September 13, 2024 and sell it today you would earn a total of  249.00  from holding OceanFirst Financial Corp or generate 14.24% return on investment over 90 days.

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

Westamerica Bancorp.  vs.  OceanFirst Financial Corp

Westamerica Bancorporation

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Westamerica Bancorporation are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental drivers, Westamerica Bancorporation exhibited solid returns over the last few months and may actually be approaching a breakup point.

OceanFirst Financial Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in OceanFirst Financial Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent technical and fundamental indicators, OceanFirst Financial exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Westamerica Bancorporation and OceanFirst Financial

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

The idea behind Westamerica Bancorporation and OceanFirst Financial Corp 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.