Correlation Between Heritage Commerce and National Bankshares

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

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

Diversification Opportunities for Heritage Commerce and National Bankshares

0.87

Correlation Coefficient

Heritage Commerce  National Bankshares

Very poor diversification

The 3 months correlation between Heritage and National is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Heritage Commerce Corp and National Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Bankshares and Heritage Commerce 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 Heritage Commerce Corp are associated (or correlated) with National Bankshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Bankshares has no effect on the direction of Heritage Commerce i.e., Heritage Commerce and National Bankshares go up and down completely randomly.

Pair Corralation between Heritage Commerce and National Bankshares

Given the investment horizon of 90 days Heritage Commerce Corp is expected to under-perform the National Bankshares. But the stock apears to be less risky and, when comparing its historical volatility, Heritage Commerce Corp is 1.99 times less risky than National Bankshares. The stock trades about -0.48 of its potential returns per unit of risk. The National Bankshares is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  3,126  in National Bankshares on September 23, 2024 and sell it today you would lose (120.00) from holding National Bankshares or give up 3.84% of portfolio value over 90 days.

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

Heritage Commerce Corp  vs.  National Bankshares

Heritage Commerce Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

National Bankshares

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in National Bankshares are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, National Bankshares is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Heritage Commerce and National Bankshares

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

The idea behind Heritage Commerce Corp and National Bankshares 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.