Correlation Between CNB Financial and Home Bancorp

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

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

Diversification Opportunities for CNB Financial and Home Bancorp

0.94

Correlation Coefficient

CNB Financial  Home Bancorp

Almost no diversification

The 3 months correlation between CNB and Home is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding CNB Financial and Home Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Bancorp and CNB 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 CNB Financial 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 CNB Financial i.e., CNB Financial and Home Bancorp go up and down completely randomly.

Pair Corralation between CNB Financial and Home Bancorp

Given the investment horizon of 90 days CNB Financial is expected to generate 1.76 times less return on investment than Home Bancorp. But when comparing it to its historical volatility, CNB Financial is 1.05 times less risky than Home Bancorp. It trades about 0.02 of its potential returns per unit of risk. Home Bancorp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,785  in Home Bancorp on October 26, 2024 and sell it today you would earn a total of  972.00  from holding Home Bancorp or generate 25.68% return on investment over 90 days.

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

CNB Financial  vs.  Home Bancorp

CNB Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CNB Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, CNB Financial is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Home Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Home Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental indicators, Home Bancorp is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with CNB Financial and Home Bancorp

The main advantage of trading using opposite CNB Financial and Home Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CNB Financial 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 CNB Financial 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..