Correlation Between Home Federal and First Community
Can any of the company-specific risk be diversified away by investing in both Home Federal and First Community 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 Home Federal and First Community into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Federal Bancorp and First Community, you can compare the effects of market volatilities on Home Federal and First Community 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 Home Federal with a short position of First Community. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Federal and First Community.
Diversification Opportunities for Home Federal and First Community
0.06 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Home and First is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Home Federal Bancorp and First Community in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Community and Home Federal 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 Home Federal Bancorp are associated (or correlated) with First Community. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Community has no effect on the direction of Home Federal i.e., Home Federal and First Community go up and down completely randomly.
Pair Corralation between Home Federal and First Community
Given the investment horizon of 90 days Home Federal Bancorp is expected to generate 28.05 times more return on investment than First Community. However, Home Federal is 28.05 times more volatile than First Community. It trades about 0.05 of its potential returns per unit of risk. First Community is currently generating about 0.07 per unit of risk. If you would invest 1,263 in Home Federal Bancorp on August 27, 2024 and sell it today you would lose (23.00) from holding Home Federal Bancorp or give up 1.82% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 87.13% |
| Values | Daily Returns |
Home Federal Bancorp vs. First Community
Performance |
| Timeline |
| Home Federal Bancorp |
| First Community |
Home Federal and First Community Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Federal and First Community
The main advantage of trading using opposite Home Federal and First Community positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Federal position performs unexpectedly, First Community 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 First Community will offset losses from the drop in First Community's long position.The idea behind Home Federal Bancorp and First Community 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.| First Community vs. Community West Bancshares | First Community vs. First Financial Northwest | First Community vs. First Northwest Bancorp | First Community vs. Home Federal Bancorp |
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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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