Correlation Between First United and Home Federal
Can any of the company-specific risk be diversified away by investing in both First United 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 First United and Home Federal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First United and Home Federal Bancorp, you can compare the effects of market volatilities on First United 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 First United with a short position of Home Federal. Check out your portfolio center. Please also check ongoing floating volatility patterns of First United and Home Federal.
Diversification Opportunities for First United and Home Federal
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between First and Home is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding First United 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 First United 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 First United 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 First United i.e., First United and Home Federal go up and down completely randomly.
Pair Corralation between First United and Home Federal
Given the investment horizon of 90 days First United is expected to generate 19.77 times less return on investment than Home Federal. But when comparing it to its historical volatility, First United is 51.34 times less risky than Home Federal. It trades about 0.18 of its potential returns per unit of risk. Home Federal Bancorp is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 1,232 in Home Federal Bancorp on August 27, 2024 and sell it today you would earn a total of 8.00 from holding Home Federal Bancorp or generate 0.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 90.96% |
| Values | Daily Returns |
First United vs. Home Federal Bancorp
Performance |
| Timeline |
| First United |
| Home Federal Bancorp |
First United and Home Federal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First United and Home Federal
The main advantage of trading using opposite First United and Home Federal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First United 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.| First United vs. First Community | First United vs. Greene County Bancorp | First United vs. Community West Bancshares | First United vs. Affinity Bancshares |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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