Correlation Between Ames National and Home Federal

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

Diversification Opportunities for Ames National and Home Federal

-0.13
  Correlation Coefficient

Good diversification

The 3 months correlation between Ames and Home is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Ames National and Home Federal Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Federal Bancorp and Ames National 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 Ames National are associated (or correlated) with Home Federal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Federal Bancorp has no effect on the direction of Ames National i.e., Ames National and Home Federal go up and down completely randomly.

Pair Corralation between Ames National and Home Federal

Given the investment horizon of 90 days Ames National is expected to under-perform the Home Federal. But the stock apears to be less risky and, when comparing its historical volatility, Ames National is 25.17 times less risky than Home Federal. The stock trades about -0.01 of its potential returns per unit of risk. The Home Federal Bancorp is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,628  in Home Federal Bancorp on August 29, 2024 and sell it today you would lose (393.00) from holding Home Federal Bancorp or give up 24.14% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy90.32%
ValuesDaily Returns

Ames National  vs.  Home Federal Bancorp

 Performance 
       Timeline  
Ames National 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Ames National has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's essential indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.
Home Federal Bancorp 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Home Federal Bancorp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental drivers, Home Federal disclosed solid returns over the last few months and may actually be approaching a breakup point.

Ames National and Home Federal Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ames National and Home Federal

The main advantage of trading using opposite Ames National and Home Federal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ames National position performs unexpectedly, Home Federal 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 Home Federal will offset losses from the drop in Home Federal's long position.
The idea behind Ames National and Home Federal 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.

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