Correlation Between National Bank and Central Pacific

Can any of the company-specific risk be diversified away by investing in both National 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 National 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 National Bank Holdings and Central Pacific Financial, you can compare the effects of market volatilities on National 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 National Bank with a short position of Central Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Bank and Central Pacific.

Diversification Opportunities for National Bank and Central Pacific

0.8

Correlation Coefficient

National Bank  Central Pacific

Very poor diversification

The 3 months correlation between National and Central is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding National Bank Holdings 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 National 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 National Bank Holdings 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 National Bank i.e., National Bank and Central Pacific go up and down completely randomly.

Pair Corralation between National Bank and Central Pacific

Given the investment horizon of 90 days National Bank Holdings is expected to under-perform the Central Pacific. But the stock apears to be less risky and, when comparing its historical volatility, National Bank Holdings is 1.33 times less risky than Central Pacific. The stock trades about -0.15 of its potential returns per unit of risk. The Central Pacific Financial is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  3,112  in Central Pacific Financial on November 30, 2024 and sell it today you would lose (208.00) from holding Central Pacific Financial or give up 6.68% of portfolio value over 90 days.

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

National Bank Holdings  vs.  Central Pacific Financial

National Bank Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days National Bank Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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 National Bank and Central Pacific

The main advantage of trading using opposite National Bank and Central Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National 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 National Bank Holdings 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.