Correlation Between Bank of South and Home Bancorp

Can any of the company-specific risk be diversified away by investing in both Bank of South and Home Bancorp 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 Bank of South and Home Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bank of South and Home Bancorp, you can compare the effects of market volatilities on Bank of South and Home Bancorp 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 Bank of South with a short position of Home Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of South and Home Bancorp.

Diversification Opportunities for Bank of South and Home Bancorp

-0.2

Correlation Coefficient

Bank of South  Home Bancorp

Good diversification

The 3 months correlation between Bank and Home is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Bank of South and Home Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Bancorp and Bank of South 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 Bank of South are associated (or correlated) with Home Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Bancorp has no effect on the direction of Bank of South i.e., Bank of South and Home Bancorp go up and down completely randomly.

Pair Corralation between Bank of South and Home Bancorp

If you would invest  4,256  in Home Bancorp on September 2, 2024 and sell it today you would earn a total of  817.00  from holding Home Bancorp or generate 19.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	1.56%
Values	Daily Returns

Bank of South  vs.  Home Bancorp

Bank of South

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank of South has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Bank of South is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Home Bancorp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Home Bancorp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent fundamental indicators, Home Bancorp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of South and Home Bancorp

The main advantage of trading using opposite Bank of South and Home Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of South position performs unexpectedly, Home Bancorp 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 Bancorp will offset losses from the drop in Home Bancorp's long position.

The idea behind Bank of South and Home Bancorp 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.

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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..