Correlation Between First Bancorp and Central Pacific

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

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

Diversification Opportunities for First Bancorp and Central Pacific

0.78

Correlation Coefficient

First Bancorp  Central Pacific

Poor diversification

The 3 months correlation between First and Central is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding First Bancorp and Central Pacific Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Pacific Financial and First Bancorp 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 First Bancorp are associated (or correlated) with Central Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Pacific Financial has no effect on the direction of First Bancorp i.e., First Bancorp and Central Pacific go up and down completely randomly.

Pair Corralation between First Bancorp and Central Pacific

Considering the 90-day investment horizon First Bancorp is expected to generate 0.99 times more return on investment than Central Pacific. However, First Bancorp is 1.01 times less risky than Central Pacific. It trades about 0.06 of its potential returns per unit of risk. Central Pacific Financial is currently generating about -0.03 per unit of risk. If you would invest  1,838  in First Bancorp on December 28, 2024 and sell it today you would earn a total of  105.00  from holding First Bancorp or generate 5.71% return on investment over 90 days.

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

First Bancorp  vs.  Central Pacific Financial

First Bancorp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Bancorp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile fundamental drivers, First Bancorp may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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.

Pair Trading with First Bancorp and Central Pacific

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

The idea behind First Bancorp and Central Pacific 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.