Correlation Between Home Federal and Prime Meridian

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

Diversification Opportunities for Home Federal and Prime Meridian

0.04

Correlation Coefficient

Home Federal  Prime Meridian

Significant diversification

The 3 months correlation between Home and Prime is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Home Federal Bancorp and Prime Meridian Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prime Meridian 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 Prime Meridian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prime Meridian Holding has no effect on the direction of Home Federal i.e., Home Federal and Prime Meridian go up and down completely randomly.

Pair Corralation between Home Federal and Prime Meridian

Given the investment horizon of 90 days Home Federal Bancorp is expected to generate 31.93 times more return on investment than Prime Meridian. However, Home Federal is 31.93 times more volatile than Prime Meridian Holding. It trades about 0.05 of its potential returns per unit of risk. Prime Meridian Holding is currently generating about 0.07 per unit of risk. If you would invest  1,271  in Home Federal Bancorp on August 31, 2024 and sell it today you would lose (35.00) from holding Home Federal Bancorp or give up 2.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.69%
Values	Daily Returns

Home Federal Bancorp  vs.  Prime Meridian Holding

Home Federal Bancorp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Home Federal Bancorp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile fundamental drivers, Home Federal disclosed solid returns over the last few months and may actually be approaching a breakup point.

Prime Meridian Holding

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prime Meridian Holding are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical indicators, Prime Meridian reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Home Federal and Prime Meridian

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

The idea behind Home Federal Bancorp and Prime Meridian 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.

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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.