Correlation Between City Holding and CVB Financial

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

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

Diversification Opportunities for City Holding and CVB Financial

0.9

Correlation Coefficient

City Holding  CVB Financial

Almost no diversification

The 3 months correlation between City and CVB is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding City Holding and CVB Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVB Financial and City Holding 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 City Holding are associated (or correlated) with CVB Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVB Financial has no effect on the direction of City Holding i.e., City Holding and CVB Financial go up and down completely randomly.

Pair Corralation between City Holding and CVB Financial

Given the investment horizon of 90 days City Holding is expected to under-perform the CVB Financial. But the stock apears to be less risky and, when comparing its historical volatility, City Holding is 1.33 times less risky than CVB Financial. The stock trades about -0.01 of its potential returns per unit of risk. The CVB Financial is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,923  in CVB Financial on October 15, 2024 and sell it today you would earn a total of  36.00  from holding CVB Financial or generate 1.87% return on investment over 90 days.

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

City Holding  vs.  CVB Financial

City Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days City Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, City Holding is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

CVB Financial

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CVB Financial are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental drivers, CVB Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with City Holding and CVB Financial

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

The idea behind City Holding and CVB Financial 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.