Correlation Between Western Alliance and Village Bank

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

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

Diversification Opportunities for Western Alliance and Village Bank

0.49

Correlation Coefficient

Western Alliance  Village Bank

Very weak diversification

The 3 months correlation between Western and Village is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Western Alliance Bancorp. and Village Bank and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Village Bank and Western Alliance 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 Western Alliance Bancorporation are associated (or correlated) with Village Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Village Bank has no effect on the direction of Western Alliance i.e., Western Alliance and Village Bank go up and down completely randomly.

Pair Corralation between Western Alliance and Village Bank

Considering the 90-day investment horizon Western Alliance is expected to generate 69.18 times less return on investment than Village Bank. But when comparing it to its historical volatility, Western Alliance Bancorporation is 50.36 times less risky than Village Bank. It trades about 0.1 of its potential returns per unit of risk. Village Bank and is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  4,832  in Village Bank and on August 31, 2024 and sell it today you would earn a total of  2,948  from holding Village Bank and or generate 61.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	75.0%
Values	Daily Returns

Western Alliance Bancorp.  vs.  Village Bank and

Western Alliance Ban

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Alliance Bancorporation are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating basic indicators, Western Alliance disclosed solid returns over the last few months and may actually be approaching a breakup point.

Village Bank

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Village Bank and has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather weak technical and fundamental indicators, Village Bank exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Alliance and Village Bank

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

The idea behind Western Alliance Bancorporation and Village Bank and 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.