Correlation Between Independent Bank and Central Pacific

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

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

Diversification Opportunities for Independent Bank and Central Pacific

0.89

Correlation Coefficient

Independent Bank  Central Pacific

Very poor diversification

The 3 months correlation between Independent and Central is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Independent Bank and Central Pacific Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Pacific Financial and Independent Bank 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 Independent Bank are associated (or correlated) with Central Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Pacific Financial has no effect on the direction of Independent Bank i.e., Independent Bank and Central Pacific go up and down completely randomly.

Pair Corralation between Independent Bank and Central Pacific

Given the investment horizon of 90 days Independent Bank is expected to generate 0.96 times more return on investment than Central Pacific. However, Independent Bank is 1.04 times less risky than Central Pacific. It trades about 0.0 of its potential returns per unit of risk. Central Pacific Financial is currently generating about -0.04 per unit of risk. If you would invest  6,411  in Independent Bank on December 30, 2024 and sell it today you would lose (92.00) from holding Independent Bank or give up 1.44% of portfolio value over 90 days.

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

Independent Bank  vs.  Central Pacific Financial

Independent Bank

Risk-Adjusted Performance

Very Weak

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

Central Pacific Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Central Pacific Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Central Pacific is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Independent Bank and Central Pacific

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

The idea behind Independent Bank and Central Pacific 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.