Correlation Between Provident Financial and Territorial Bancorp

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Can any of the company-specific risk be diversified away by investing in both Provident Financial and Territorial Bancorp 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 Provident Financial and Territorial Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Provident Financial Services and Territorial Bancorp, you can compare the effects of market volatilities on Provident Financial and Territorial Bancorp 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 Provident Financial with a short position of Territorial Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Provident Financial and Territorial Bancorp.

Diversification Opportunities for Provident Financial and Territorial Bancorp

0.73
  Correlation Coefficient

Poor diversification

The 3 months correlation between Provident and Territorial is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Provident Financial Services and Territorial Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Territorial Bancorp and Provident Financial 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 Provident Financial Services are associated (or correlated) with Territorial Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Territorial Bancorp has no effect on the direction of Provident Financial i.e., Provident Financial and Territorial Bancorp go up and down completely randomly.

Pair Corralation between Provident Financial and Territorial Bancorp

Assuming the 90 days horizon Provident Financial Services is expected to generate 0.92 times more return on investment than Territorial Bancorp. However, Provident Financial Services is 1.08 times less risky than Territorial Bancorp. It trades about 0.07 of its potential returns per unit of risk. Territorial Bancorp is currently generating about 0.03 per unit of risk. If you would invest  1,458  in Provident Financial Services on September 6, 2024 and sell it today you would earn a total of  532.00  from holding Provident Financial Services or generate 36.49% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Provident Financial Services  vs.  Territorial Bancorp

 Performance 
       Timeline  
Provident Financial 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Provident Financial Services are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Provident Financial reported solid returns over the last few months and may actually be approaching a breakup point.
Territorial Bancorp 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Territorial Bancorp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Territorial Bancorp reported solid returns over the last few months and may actually be approaching a breakup point.

Provident Financial and Territorial Bancorp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Provident Financial and Territorial Bancorp

The main advantage of trading using opposite Provident Financial and Territorial Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Provident Financial position performs unexpectedly, Territorial Bancorp 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 Territorial Bancorp will offset losses from the drop in Territorial Bancorp's long position.
The idea behind Provident Financial Services and Territorial Bancorp 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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