Correlation Between First Business and HomeTrust Bancshares

Can any of the company-specific risk be diversified away by investing in both First Business and HomeTrust 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 First Business and HomeTrust Bancshares into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between First Business Financial and HomeTrust Bancshares, you can compare the effects of market volatilities on First Business and HomeTrust 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 First Business with a short position of HomeTrust Bancshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Business and HomeTrust Bancshares.

Diversification Opportunities for First Business and HomeTrust Bancshares

0.96

Correlation Coefficient

First Business  HomeTrust Bancshares

Almost no diversification

The 3 months correlation between First and HomeTrust is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding First Business Financial and HomeTrust Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HomeTrust Bancshares and First Business 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 First Business Financial are associated (or correlated) with HomeTrust Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HomeTrust Bancshares has no effect on the direction of First Business i.e., First Business and HomeTrust Bancshares go up and down completely randomly.

Pair Corralation between First Business and HomeTrust Bancshares

Given the investment horizon of 90 days First Business Financial is expected to generate 1.09 times more return on investment than HomeTrust Bancshares. However, First Business is 1.09 times more volatile than HomeTrust Bancshares. It trades about -0.24 of its potential returns per unit of risk. HomeTrust Bancshares is currently generating about -0.27 per unit of risk. If you would invest  5,025  in First Business Financial on September 22, 2024 and sell it today you would lose (431.00) from holding First Business Financial or give up 8.58% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

First Business Financial  vs.  HomeTrust Bancshares

First Business Financial

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Business Financial are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong forward indicators, First Business is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

HomeTrust Bancshares

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HomeTrust Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, HomeTrust Bancshares is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with First Business and HomeTrust Bancshares

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

The idea behind First Business Financial and HomeTrust Bancshares 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.