Correlation Between Central Pacific and Waterstone Financial

Can any of the company-specific risk be diversified away by investing in both Central Pacific and Waterstone Financial 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 Central Pacific and Waterstone Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Central Pacific and Waterstone Financial

0.56

Correlation Coefficient

Central Pacific  Waterstone Financial

Very weak diversification

The 3 months correlation between Central and Waterstone is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Central Pacific Financial and Waterstone Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waterstone Financial and Central Pacific 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 Central Pacific Financial are associated (or correlated) with Waterstone Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waterstone Financial has no effect on the direction of Central Pacific i.e., Central Pacific and Waterstone Financial go up and down completely randomly.

Pair Corralation between Central Pacific and Waterstone Financial

Considering the 90-day investment horizon Central Pacific Financial is expected to generate 1.05 times more return on investment than Waterstone Financial. However, Central Pacific is 1.05 times more volatile than Waterstone Financial. It trades about -0.35 of its potential returns per unit of risk. Waterstone Financial is currently generating about -0.46 per unit of risk. If you would invest  3,237  in Central Pacific Financial on September 26, 2024 and sell it today you would lose (353.00) from holding Central Pacific Financial or give up 10.91% of portfolio value over 90 days.

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

Central Pacific Financial  vs.  Waterstone Financial

Central Pacific Financial

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Central Pacific Financial are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Waterstone Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Waterstone Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's fundamental drivers remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Central Pacific and Waterstone Financial

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

The idea behind Central Pacific Financial and Waterstone 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.