Correlation Between Ford and Bank of Hawaii
Can any of the company-specific risk be diversified away by investing in both Ford 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 Ford 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 Ford Motor and Bank of Hawaii, you can compare the effects of market volatilities on Ford 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 Ford with a short position of Bank of Hawaii. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Bank of Hawaii.
Diversification Opportunities for Ford and Bank of Hawaii
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Ford and Bank is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor 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 Ford 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 Ford Motor 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 Ford i.e., Ford and Bank of Hawaii go up and down completely randomly.
Pair Corralation between Ford and Bank of Hawaii
Taking into account the 90-day investment horizon Ford is expected to generate 1.43 times less return on investment than Bank of Hawaii. In addition to that, Ford is 1.05 times more volatile than Bank of Hawaii. It trades about 0.1 of its total potential returns per unit of risk. Bank of Hawaii is currently generating about 0.15 per unit of volatility. If you would invest 7,124 in Bank of Hawaii on November 1, 2024 and sell it today you would earn a total of 351.00 from holding Bank of Hawaii or generate 4.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.0% |
| Values | Daily Returns |
Ford Motor vs. Bank of Hawaii
Performance |
| Timeline |
| Ford Motor |
| Bank of Hawaii |
Ford and Bank of Hawaii Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Bank of Hawaii
The main advantage of trading using opposite Ford and Bank of Hawaii positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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 Ford Motor 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.| Bank of Hawaii vs. Central Pacific Financial | Bank of Hawaii vs. Territorial Bancorp | Bank of Hawaii vs. First Bancorp | Bank of Hawaii vs. Hancock Whitney Corp |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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