Correlation Between Heritage Financial and CVB Financial

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

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

Diversification Opportunities for Heritage Financial and CVB Financial

0.97

Correlation Coefficient

Heritage Financial  CVB Financial

Almost no diversification

The 3 months correlation between Heritage and CVB is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Heritage Financial and CVB Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVB Financial and Heritage Financial 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 Heritage Financial are associated (or correlated) with CVB Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVB Financial has no effect on the direction of Heritage Financial i.e., Heritage Financial and CVB Financial go up and down completely randomly.

Pair Corralation between Heritage Financial and CVB Financial

Given the investment horizon of 90 days Heritage Financial is expected to generate 4.03 times less return on investment than CVB Financial. But when comparing it to its historical volatility, Heritage Financial is 1.17 times less risky than CVB Financial. It trades about 0.0 of its potential returns per unit of risk. CVB Financial is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,288  in CVB Financial on September 28, 2024 and sell it today you would lose (68.00) from holding CVB Financial or give up 2.97% of portfolio value over 90 days.

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

Heritage Financial  vs.  CVB Financial

Heritage Financial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Heritage Financial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Heritage Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

CVB Financial

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CVB Financial are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting fundamental drivers, CVB Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Heritage Financial and CVB Financial

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

The idea behind Heritage Financial and CVB 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.

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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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.