Correlation Between Home Federal and First United
Can any of the company-specific risk be diversified away by investing in both Home Federal and First United 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 United 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 United, you can compare the effects of market volatilities on Home Federal and First United 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 United. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Federal and First United.
Diversification Opportunities for Home Federal and First United
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Home and First is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Home Federal Bancorp and First United in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First United 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 United. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First United has no effect on the direction of Home Federal i.e., Home Federal and First United go up and down completely randomly.
Pair Corralation between Home Federal and First United
Given the investment horizon of 90 days Home Federal Bancorp is expected to generate 51.34 times more return on investment than First United. However, Home Federal is 51.34 times more volatile than First United. It trades about 0.07 of its potential returns per unit of risk. First United is currently generating about 0.18 per unit of risk. 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 |
Home Federal Bancorp vs. First United
Performance |
| Timeline |
| Home Federal Bancorp |
| First United |
Home Federal and First United Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Federal and First United
The main advantage of trading using opposite Home Federal and First United positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Federal position performs unexpectedly, First United 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 United will offset losses from the drop in First United's long position.The idea behind Home Federal Bancorp and First United 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 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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