Correlation Between Alerus Financial and Heritage Financial

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

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

Diversification Opportunities for Alerus Financial and Heritage Financial

0.81

Correlation Coefficient

Alerus Financial  Heritage Financial

Very poor diversification

The 3 months correlation between Alerus and Heritage is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Alerus Financial Corp and Heritage Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heritage Financial and Alerus Financial 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 Alerus Financial Corp are associated (or correlated) with Heritage Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heritage Financial has no effect on the direction of Alerus Financial i.e., Alerus Financial and Heritage Financial go up and down completely randomly.

Pair Corralation between Alerus Financial and Heritage Financial

Given the investment horizon of 90 days Alerus Financial Corp is expected to under-perform the Heritage Financial. In addition to that, Alerus Financial is 1.0 times more volatile than Heritage Financial. It trades about -0.04 of its total potential returns per unit of risk. Heritage Financial is currently generating about 0.0 per unit of volatility. If you would invest  2,399  in Heritage Financial on December 22, 2024 and sell it today you would lose (21.00) from holding Heritage Financial or give up 0.88% of portfolio value over 90 days.

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

Alerus Financial Corp  vs.  Heritage Financial

Alerus Financial Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alerus Financial Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Alerus Financial is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Heritage Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Heritage Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Heritage Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alerus Financial and Heritage Financial

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

The idea behind Alerus Financial Corp and Heritage Financial 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.