Correlation Between Prosperity Bancshares and Bank of Hawaii

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

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

Diversification Opportunities for Prosperity Bancshares and Bank of Hawaii

0.85

Correlation Coefficient

Prosperity Bancshares  Bank of Hawaii

Very poor diversification

The 3 months correlation between Prosperity and Bank is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Prosperity Bancshares and Bank of Hawaii in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Hawaii and Prosperity Bancshares 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 Prosperity Bancshares are associated (or correlated) with Bank of Hawaii. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Hawaii has no effect on the direction of Prosperity Bancshares i.e., Prosperity Bancshares and Bank of Hawaii go up and down completely randomly.

Pair Corralation between Prosperity Bancshares and Bank of Hawaii

Allowing for the 90-day total investment horizon Prosperity Bancshares is expected to under-perform the Bank of Hawaii. But the stock apears to be less risky and, when comparing its historical volatility, Prosperity Bancshares is 1.21 times less risky than Bank of Hawaii. The stock trades about -0.07 of its potential returns per unit of risk. The Bank of Hawaii is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  7,074  in Bank of Hawaii on December 28, 2024 and sell it today you would lose (219.00) from holding Bank of Hawaii or give up 3.1% of portfolio value over 90 days.

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

Prosperity Bancshares  vs.  Bank of Hawaii

Prosperity Bancshares

Risk-Adjusted Performance

Very Weak

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

Bank of Hawaii

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Prosperity Bancshares and Bank of Hawaii

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

The idea behind Prosperity Bancshares and Bank of Hawaii 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.