Correlation Between German American and Home Federal
Can any of the company-specific risk be diversified away by investing in both German American 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 German American and Home Federal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between German American Bancorp and Home Federal Bancorp, you can compare the effects of market volatilities on German American 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 German American with a short position of Home Federal. Check out your portfolio center. Please also check ongoing floating volatility patterns of German American and Home Federal.
Diversification Opportunities for German American and Home Federal
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between German and Home is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding German American Bancorp 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 German American 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 German American Bancorp 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 German American i.e., German American and Home Federal go up and down completely randomly.
Pair Corralation between German American and Home Federal
Given the investment horizon of 90 days German American is expected to generate 19.72 times less return on investment than Home Federal. But when comparing it to its historical volatility, German American Bancorp is 31.14 times less risky than Home Federal. It trades about 0.08 of its potential returns per unit of risk. Home Federal Bancorp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 1,274 in Home Federal Bancorp on September 2, 2024 and sell it today you would lose (38.00) from holding Home Federal Bancorp or give up 2.98% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 87.1% |
| Values | Daily Returns |
German American Bancorp vs. Home Federal Bancorp
Performance |
| Timeline |
| German American Bancorp |
| Home Federal Bancorp |
German American and Home Federal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with German American and Home Federal
The main advantage of trading using opposite German American and Home Federal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if German American 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.| German American vs. Lakeland Financial | German American vs. Great Southern Bancorp | German American vs. First Merchants | German American vs. First Financial |
| Home Federal vs. Affinity Bancshares | Home Federal vs. Auburn National Bancorporation | Home Federal vs. BayCom Corp | Home Federal vs. Community West 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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