Correlation Between First Hawaiian and United Overseas

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

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

Diversification Opportunities for First Hawaiian and United Overseas

0.82

Correlation Coefficient

First Hawaiian  United Overseas

Very poor diversification

The 3 months correlation between First and United is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding First Hawaiian and United Overseas Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Overseas Bank 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 United Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Overseas Bank has no effect on the direction of First Hawaiian i.e., First Hawaiian and United Overseas go up and down completely randomly.

Pair Corralation between First Hawaiian and United Overseas

Considering the 90-day investment horizon First Hawaiian is expected to generate 1.38 times less return on investment than United Overseas. In addition to that, First Hawaiian is 2.0 times more volatile than United Overseas Bank. It trades about 0.02 of its total potential returns per unit of risk. United Overseas Bank is currently generating about 0.06 per unit of volatility. If you would invest  4,095  in United Overseas Bank on September 26, 2024 and sell it today you would earn a total of  1,236  from holding United Overseas Bank or generate 30.18% return on investment over 90 days.

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

First Hawaiian  vs.  United Overseas Bank

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.

United Overseas Bank

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in United Overseas Bank are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, United Overseas is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Hawaiian and United Overseas

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

The idea behind First Hawaiian and United Overseas Bank 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.