Correlation Between Main Street and First Hawaiian

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

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

Diversification Opportunities for Main Street and First Hawaiian

0.74

Correlation Coefficient

Main Street  First Hawaiian

Poor diversification

The 3 months correlation between Main and First is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Main Street Financial and First Hawaiian in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Hawaiian and Main Street 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 Main Street Financial 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 Main Street i.e., Main Street and First Hawaiian go up and down completely randomly.

Pair Corralation between Main Street and First Hawaiian

Given the investment horizon of 90 days Main Street is expected to generate 1.87 times less return on investment than First Hawaiian. But when comparing it to its historical volatility, Main Street Financial is 1.69 times less risky than First Hawaiian. It trades about 0.13 of its potential returns per unit of risk. First Hawaiian is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,305  in First Hawaiian on September 13, 2024 and sell it today you would earn a total of  442.00  from holding First Hawaiian or generate 19.18% return on investment over 90 days.

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

Main Street Financial  vs.  First Hawaiian

Main Street Financial

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Main Street Financial are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Main Street may actually be approaching a critical reversion point that can send shares even higher in January 2025.

First Hawaiian

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Hawaiian are ranked lower than 11 (%) 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.

Pair Trading with Main Street and First Hawaiian

The main advantage of trading using opposite Main Street and First Hawaiian positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Main Street 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 Main Street Financial 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.