Correlation Between Territorial Bancorp and Aozora Bank

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

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

Diversification Opportunities for Territorial Bancorp and Aozora Bank

0.85

Correlation Coefficient

Territorial Bancorp  Aozora Bank

Very poor diversification

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

Pair Corralation between Territorial Bancorp and Aozora Bank

Given the investment horizon of 90 days Territorial Bancorp is expected to under-perform the Aozora Bank. In addition to that, Territorial Bancorp is 1.2 times more volatile than Aozora Bank Ltd. It trades about -0.13 of its total potential returns per unit of risk. Aozora Bank Ltd is currently generating about -0.15 per unit of volatility. If you would invest  439.00  in Aozora Bank Ltd on December 30, 2024 and sell it today you would lose (59.00) from holding Aozora Bank Ltd or give up 13.44% of portfolio value over 90 days.

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

Territorial Bancorp  vs.  Aozora Bank Ltd

Territorial Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Territorial Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Aozora Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aozora Bank Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Territorial Bancorp and Aozora Bank

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

The idea behind Territorial Bancorp and Aozora Bank Ltd 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.