Correlation Between Home Federal and City Holding

Can any of the company-specific risk be diversified away by investing in both Home Federal and City Holding 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 City Holding 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 City Holding, you can compare the effects of market volatilities on Home Federal and City Holding 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 City Holding. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Federal and City Holding.

Diversification Opportunities for Home Federal and City Holding

0.09

Correlation Coefficient

Home Federal  City Holding

Significant diversification

The 3 months correlation between Home and City is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Home Federal Bancorp and City Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City Holding 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 City Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of City Holding has no effect on the direction of Home Federal i.e., Home Federal and City Holding go up and down completely randomly.

Pair Corralation between Home Federal and City Holding

Given the investment horizon of 90 days Home Federal Bancorp is expected to generate 61.34 times more return on investment than City Holding. However, Home Federal is 61.34 times more volatile than City Holding. It trades about 0.13 of its potential returns per unit of risk. City Holding is currently generating about 0.09 per unit of risk. If you would invest  0.00  in Home Federal Bancorp on September 4, 2024 and sell it today you would earn a total of  1,228  from holding Home Federal Bancorp or generate 9.223372036854776E16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	90.63%
Values	Daily Returns

Home Federal Bancorp  vs.  City Holding

Home Federal Bancorp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Home Federal Bancorp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady fundamental drivers, Home Federal disclosed solid returns over the last few months and may actually be approaching a breakup point.

City Holding

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in City Holding are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady fundamental indicators, City Holding may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Home Federal and City Holding

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

The idea behind Home Federal Bancorp and City Holding 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.