Correlation Between Business First and Home Federal
Can any of the company-specific risk be diversified away by investing in both Business First 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 Business First and Home Federal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Business First Bancshares and Home Federal Bancorp, you can compare the effects of market volatilities on Business First 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 Business First with a short position of Home Federal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Business First and Home Federal.
Diversification Opportunities for Business First and Home Federal
0.01 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Business and Home is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Business First Bancshares 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 Business First 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 Business First Bancshares 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 Business First i.e., Business First and Home Federal go up and down completely randomly.
Pair Corralation between Business First and Home Federal
Given the investment horizon of 90 days Business First Bancshares is expected to generate 1.39 times more return on investment than Home Federal. However, Business First is 1.39 times more volatile than Home Federal Bancorp. It trades about 0.13 of its potential returns per unit of risk. Home Federal Bancorp is currently generating about -0.03 per unit of risk. If you would invest 2,641 in Business First Bancshares on August 29, 2024 and sell it today you would earn a total of 243.00 from holding Business First Bancshares or generate 9.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 90.91% |
| Values | Daily Returns |
Business First Bancshares vs. Home Federal Bancorp
Performance |
| Timeline |
| Business First Bancshares |
| Home Federal Bancorp |
Business First and Home Federal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Business First and Home Federal
The main advantage of trading using opposite Business First and Home Federal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Business First 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.| Business First vs. First Community | Business First vs. Community West Bancshares | Business First vs. First Financial Northwest | Business First vs. First Northwest Bancorp |
| Home Federal vs. Fifth Third Bancorp | Home Federal vs. Huntington Bancshares Incorporated | Home Federal vs. MT Bank |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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