Correlation Between Home Federal and John Marshall

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

Diversification Opportunities for Home Federal and John Marshall

0.2

Correlation Coefficient

Home Federal  John Marshall

Modest diversification

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

Pair Corralation between Home Federal and John Marshall

Given the investment horizon of 90 days Home Federal Bancorp is expected to generate 0.61 times more return on investment than John Marshall. However, Home Federal Bancorp is 1.65 times less risky than John Marshall. It trades about 0.17 of its potential returns per unit of risk. John Marshall Bancorp is currently generating about -0.23 per unit of risk. If you would invest  1,249  in Home Federal Bancorp on September 14, 2024 and sell it today you would earn a total of  68.00  from holding Home Federal Bancorp or generate 5.44% return on investment over 90 days.

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

Home Federal Bancorp  vs.  John Marshall Bancorp

Home Federal Bancorp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Home Federal Bancorp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile fundamental drivers, Home Federal may actually be approaching a critical reversion point that can send shares even higher in January 2025.

John Marshall Bancorp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in John Marshall Bancorp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, John Marshall sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Home Federal and John Marshall

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

The idea behind Home Federal Bancorp and John Marshall 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.