Correlation Between Community Bank and Home Bancorp

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

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

Diversification Opportunities for Community Bank and Home Bancorp

0.9

Correlation Coefficient

Community Bank  Home Bancorp

Almost no diversification

The 3 months correlation between Community and Home is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Community Bank System and Home Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Bancorp and Community Bank 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 Community Bank System are associated (or correlated) with Home Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Bancorp has no effect on the direction of Community Bank i.e., Community Bank and Home Bancorp go up and down completely randomly.

Pair Corralation between Community Bank and Home Bancorp

Considering the 90-day investment horizon Community Bank is expected to generate 1.19 times less return on investment than Home Bancorp. In addition to that, Community Bank is 1.22 times more volatile than Home Bancorp. It trades about 0.1 of its total potential returns per unit of risk. Home Bancorp is currently generating about 0.14 per unit of volatility. If you would invest  4,256  in Home Bancorp on September 1, 2024 and sell it today you would earn a total of  817.00  from holding Home Bancorp or generate 19.2% return on investment over 90 days.

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

Community Bank System  vs.  Home Bancorp

Community Bank System

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Community Bank System are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting fundamental drivers, Community Bank unveiled solid returns over the last few months and may actually be approaching a breakup point.

Home Bancorp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Home Bancorp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent fundamental indicators, Home Bancorp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Community Bank and Home Bancorp

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

The idea behind Community Bank System and Home 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.