Correlation Between United Overseas and Bank of Hawaii

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

Diversification Opportunities for United Overseas and Bank of Hawaii

0.7

Correlation Coefficient

United Overseas  Bank of Hawaii

Poor diversification

The 3 months correlation between United and Bank is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding United Overseas Bank 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 United Overseas 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 United Overseas Bank 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 United Overseas i.e., United Overseas and Bank of Hawaii go up and down completely randomly.

Pair Corralation between United Overseas and Bank of Hawaii

Assuming the 90 days horizon United Overseas is expected to generate 1.76 times less return on investment than Bank of Hawaii. But when comparing it to its historical volatility, United Overseas Bank is 1.8 times less risky than Bank of Hawaii. It trades about 0.16 of its potential returns per unit of risk. Bank of Hawaii is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  6,418  in Bank of Hawaii on September 4, 2024 and sell it today you would earn a total of  1,409  from holding Bank of Hawaii or generate 21.95% return on investment over 90 days.

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

United Overseas Bank  vs.  Bank of Hawaii

United Overseas Bank

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United Overseas Bank are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating technical and fundamental indicators, United Overseas may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Bank of Hawaii

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Hawaii are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Bank of Hawaii demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Overseas and Bank of Hawaii

The main advantage of trading using opposite United Overseas and Bank of Hawaii positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Overseas 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 United Overseas Bank 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.