Correlation Between First Hawaiian and PacWest Bancorp

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

By analyzing existing cross correlation between First Hawaiian and PacWest Bancorp, you can compare the effects of market volatilities on First Hawaiian and PacWest Bancorp 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 PacWest Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Hawaiian and PacWest Bancorp.

Diversification Opportunities for First Hawaiian and PacWest Bancorp

0.08

Correlation Coefficient

First Hawaiian  PacWest Bancorp

Significant diversification

The 3 months correlation between First and PacWest is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding First Hawaiian and PacWest Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PacWest Bancorp 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 PacWest Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PacWest Bancorp has no effect on the direction of First Hawaiian i.e., First Hawaiian and PacWest Bancorp go up and down completely randomly.

Pair Corralation between First Hawaiian and PacWest Bancorp

Considering the 90-day investment horizon First Hawaiian is expected to generate 3.13 times less return on investment than PacWest Bancorp. But when comparing it to its historical volatility, First Hawaiian is 5.68 times less risky than PacWest Bancorp. It trades about 0.02 of its potential returns per unit of risk. PacWest Bancorp is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,265  in PacWest Bancorp on September 26, 2024 and sell it today you would lose (1,211) from holding PacWest Bancorp or give up 53.47% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	27.82%
Values	Daily Returns

First Hawaiian  vs.  PacWest Bancorp

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.

PacWest Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PacWest Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, PacWest Bancorp is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with First Hawaiian and PacWest Bancorp

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

The idea behind First Hawaiian and PacWest Bancorp 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.