Correlation Between HomeStreet and Embassy Bancorp

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

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

Diversification Opportunities for HomeStreet and Embassy Bancorp

-0.72

Correlation Coefficient

HomeStreet  Embassy Bancorp

Pay attention - limited upside

The 3 months correlation between HomeStreet and Embassy is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding HomeStreet and Embassy Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Embassy Bancorp and HomeStreet 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 HomeStreet are associated (or correlated) with Embassy Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Embassy Bancorp has no effect on the direction of HomeStreet i.e., HomeStreet and Embassy Bancorp go up and down completely randomly.

Pair Corralation between HomeStreet and Embassy Bancorp

Given the investment horizon of 90 days HomeStreet is expected to under-perform the Embassy Bancorp. In addition to that, HomeStreet is 9.35 times more volatile than Embassy Bancorp. It trades about -0.05 of its total potential returns per unit of risk. Embassy Bancorp is currently generating about 0.14 per unit of volatility. If you would invest  1,549  in Embassy Bancorp on September 12, 2024 and sell it today you would earn a total of  77.00  from holding Embassy Bancorp or generate 4.97% return on investment over 90 days.

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

HomeStreet  vs.  Embassy Bancorp

HomeStreet

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HomeStreet has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Embassy Bancorp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Embassy Bancorp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Embassy Bancorp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with HomeStreet and Embassy Bancorp

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

The idea behind HomeStreet and Embassy 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.