Correlation Between CVB Financial and Provident Financial

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

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

Diversification Opportunities for CVB Financial and Provident Financial

0.86

Correlation Coefficient

CVB Financial  Provident Financial

Very poor diversification

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

Pair Corralation between CVB Financial and Provident Financial

Given the investment horizon of 90 days CVB Financial is expected to under-perform the Provident Financial. But the stock apears to be less risky and, when comparing its historical volatility, CVB Financial is 1.11 times less risky than Provident Financial. The stock trades about -0.14 of its potential returns per unit of risk. The Provident Financial Services is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  1,860  in Provident Financial Services on December 28, 2024 and sell it today you would lose (121.00) from holding Provident Financial Services or give up 6.51% of portfolio value over 90 days.

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

CVB Financial  vs.  Provident Financial Services

CVB Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days CVB Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's fundamental drivers remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Provident Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Provident Financial Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Provident Financial is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with CVB Financial and Provident Financial

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

The idea behind CVB Financial and Provident Financial Services 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.