Correlation Between Home Federal and Red River

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

Diversification Opportunities for Home Federal and Red River

0.09

Correlation Coefficient

Home Federal  Red River

Significant diversification

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

Pair Corralation between Home Federal and Red River

Given the investment horizon of 90 days Home Federal Bancorp is expected to generate 25.59 times more return on investment than Red River. However, Home Federal is 25.59 times more volatile than Red River Bancshares. It trades about 0.04 of its potential returns per unit of risk. Red River Bancshares is currently generating about 0.03 per unit of risk. If you would invest  1,605  in Home Federal Bancorp on September 12, 2024 and sell it today you would lose (365.00) from holding Home Federal Bancorp or give up 22.74% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	90.3%
Values	Daily Returns

Home Federal Bancorp  vs.  Red River Bancshares

Home Federal Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Home Federal Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental drivers, Home Federal is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Red River Bancshares

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Red River Bancshares are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady fundamental drivers, Red River demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Home Federal and Red River

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

The idea behind Home Federal Bancorp and Red River 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.