Correlation Between Truist Financial and PacWest Bancorp

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

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

Diversification Opportunities for Truist Financial and PacWest Bancorp

-0.33

Correlation Coefficient

Truist Financial  PacWest Bancorp

Very good diversification

The 3 months correlation between Truist and PacWest is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Truist Financial Corp and PacWest Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PacWest Bancorp and Truist Financial 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 Truist Financial Corp are associated (or correlated) with PacWest Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PacWest Bancorp has no effect on the direction of Truist Financial i.e., Truist Financial and PacWest Bancorp go up and down completely randomly.

Pair Corralation between Truist Financial and PacWest Bancorp

Considering the 90-day investment horizon Truist Financial Corp is expected to generate 0.28 times more return on investment than PacWest Bancorp. However, Truist Financial Corp is 3.55 times less risky than PacWest Bancorp. It trades about 0.01 of its potential returns per unit of risk. PacWest Bancorp is currently generating about 0.0 per unit of risk. If you would invest  3,960  in Truist Financial Corp on February 1, 2024 and sell it today you would lose (205.00) from holding Truist Financial Corp or give up 5.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	73.91%
Values	Daily Returns

Truist Financial Corp  vs.  PacWest Bancorp

Truist Financial Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Truist Financial Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Truist Financial is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

PacWest Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PacWest Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, PacWest Bancorp is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Truist Financial and PacWest Bancorp

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

The idea behind Truist Financial Corp and PacWest Bancorp 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.