Correlation Between Central Pacific and Bank of Hawaii

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

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

Diversification Opportunities for Central Pacific and Bank of Hawaii

0.86

Correlation Coefficient

Central Pacific  Bank of Hawaii

Very poor diversification

The 3 months correlation between Central and Bank is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Central Pacific Financial and Bank of Hawaii in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Hawaii and Central Pacific 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 Central Pacific Financial are associated (or correlated) with Bank of Hawaii. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Hawaii has no effect on the direction of Central Pacific i.e., Central Pacific and Bank of Hawaii go up and down completely randomly.

Pair Corralation between Central Pacific and Bank of Hawaii

Considering the 90-day investment horizon Central Pacific Financial is expected to under-perform the Bank of Hawaii. In addition to that, Central Pacific is 1.2 times more volatile than Bank of Hawaii. It trades about -0.03 of its total potential returns per unit of risk. Bank of Hawaii is currently generating about -0.01 per unit of volatility. If you would invest  7,074  in Bank of Hawaii on December 28, 2024 and sell it today you would lose (95.00) from holding Bank of Hawaii or give up 1.34% of portfolio value over 90 days.

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

Central Pacific Financial  vs.  Bank of Hawaii

Central Pacific Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Central Pacific Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Central Pacific is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Bank of Hawaii

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank of Hawaii has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Bank of Hawaii is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Central Pacific and Bank of Hawaii

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

The idea behind Central Pacific Financial and Bank of Hawaii 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.