Correlation Between National Bankshares and Home BancShares
Can any of the company-specific risk be diversified away by investing in both National Bankshares and Home BancShares 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 National Bankshares and Home BancShares into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between National Bankshares and Home BancShares, you can compare the effects of market volatilities on National Bankshares and Home BancShares 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 National Bankshares with a short position of Home BancShares. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Bankshares and Home BancShares.
Diversification Opportunities for National Bankshares and Home BancShares
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between National and Home is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding National Bankshares and Home BancShares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home BancShares and National Bankshares 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 National Bankshares are associated (or correlated) with Home BancShares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home BancShares has no effect on the direction of National Bankshares i.e., National Bankshares and Home BancShares go up and down completely randomly.
Pair Corralation between National Bankshares and Home BancShares
Given the investment horizon of 90 days National Bankshares is expected to generate 1.79 times less return on investment than Home BancShares. But when comparing it to its historical volatility, National Bankshares is 1.37 times less risky than Home BancShares. It trades about 0.17 of its potential returns per unit of risk. Home BancShares is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 2,749 in Home BancShares on August 31, 2024 and sell it today you would earn a total of 427.00 from holding Home BancShares or generate 15.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
National Bankshares vs. Home BancShares
Performance |
| Timeline |
| National Bankshares |
| Home BancShares |
National Bankshares and Home BancShares Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with National Bankshares and Home BancShares
The main advantage of trading using opposite National Bankshares and Home BancShares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Bankshares position performs unexpectedly, Home BancShares 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 BancShares will offset losses from the drop in Home BancShares' long position.| National Bankshares vs. KeyCorp | National Bankshares vs. Comerica | National Bankshares vs. First Horizon National | National Bankshares vs. Western Alliance Bancorporation |
| Home BancShares vs. Community West Bancshares | Home BancShares vs. First Financial Northwest | Home BancShares vs. First Northwest Bancorp | Home BancShares vs. First Capital |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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