Correlation Between First Hawaiian and Overseas Chinese

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

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

Diversification Opportunities for First Hawaiian and Overseas Chinese

0.65

Correlation Coefficient

First Hawaiian  Overseas Chinese

Poor diversification

The 3 months correlation between First and Overseas is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding First Hawaiian and Overseas Chinese Banking in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Overseas Chinese Banking and First Hawaiian 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 Hawaiian are associated (or correlated) with Overseas Chinese. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Overseas Chinese Banking has no effect on the direction of First Hawaiian i.e., First Hawaiian and Overseas Chinese go up and down completely randomly.

Pair Corralation between First Hawaiian and Overseas Chinese

Considering the 90-day investment horizon First Hawaiian is expected to generate 2.25 times less return on investment than Overseas Chinese. In addition to that, First Hawaiian is 1.7 times more volatile than Overseas Chinese Banking. It trades about 0.02 of its total potential returns per unit of risk. Overseas Chinese Banking is currently generating about 0.08 per unit of volatility. If you would invest  1,629  in Overseas Chinese Banking on September 26, 2024 and sell it today you would earn a total of  894.00  from holding Overseas Chinese Banking or generate 54.88% return on investment over 90 days.

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

First Hawaiian  vs.  Overseas Chinese Banking

First Hawaiian

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Hawaiian are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting technical indicators, First Hawaiian sustained solid returns over the last few months and may actually be approaching a breakup point.

Overseas Chinese Banking

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Overseas Chinese Banking are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady technical indicators, Overseas Chinese may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Hawaiian and Overseas Chinese

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

The idea behind First Hawaiian and Overseas Chinese Banking 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.