Correlation Between Financial Institutions and First Hawaiian

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

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

Diversification Opportunities for Financial Institutions and First Hawaiian

0.84

Correlation Coefficient

Financial Institutions  First Hawaiian

Very poor diversification

The 3 months correlation between Financial and First is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Financial Institutions and First Hawaiian in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Hawaiian and Financial Institutions 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 Financial Institutions are associated (or correlated) with First Hawaiian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Hawaiian has no effect on the direction of Financial Institutions i.e., Financial Institutions and First Hawaiian go up and down completely randomly.

Pair Corralation between Financial Institutions and First Hawaiian

Given the investment horizon of 90 days Financial Institutions is expected to under-perform the First Hawaiian. In addition to that, Financial Institutions is 1.07 times more volatile than First Hawaiian. It trades about -0.06 of its total potential returns per unit of risk. First Hawaiian is currently generating about -0.06 per unit of volatility. If you would invest  2,566  in First Hawaiian on December 29, 2024 and sell it today you would lose (137.00) from holding First Hawaiian or give up 5.34% of portfolio value over 90 days.

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

Financial Institutions  vs.  First Hawaiian

Financial Institutions

Risk-Adjusted Performance

Very Weak

Over the last 90 days Financial Institutions has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Financial Institutions is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

First Hawaiian

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Hawaiian has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical indicators, First Hawaiian is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Financial Institutions and First Hawaiian

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

The idea behind Financial Institutions and First Hawaiian 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.