Correlation Between CNB Financial and Heritage Financial

Can any of the company-specific risk be diversified away by investing in both CNB 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 CNB 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 CNB Financial and Heritage Financial, you can compare the effects of market volatilities on CNB 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 CNB Financial with a short position of Heritage Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of CNB Financial and Heritage Financial.

Diversification Opportunities for CNB Financial and Heritage Financial

0.8

Correlation Coefficient

CNB Financial  Heritage Financial

Very poor diversification

The 3 months correlation between CNB and Heritage is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding CNB Financial and Heritage Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heritage Financial 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 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 CNB Financial i.e., CNB Financial and Heritage Financial go up and down completely randomly.

Pair Corralation between CNB Financial and Heritage Financial

Given the investment horizon of 90 days CNB Financial is expected to under-perform the Heritage Financial. But the stock apears to be less risky and, when comparing its historical volatility, CNB Financial is 1.18 times less risky than Heritage Financial. The stock trades about -0.12 of its potential returns per unit of risk. The Heritage Financial is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,350  in Heritage Financial on December 19, 2024 and sell it today you would earn a total of  11.00  from holding Heritage Financial or generate 0.47% return on investment over 90 days.

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

CNB Financial  vs.  Heritage Financial

CNB Financial

Risk-Adjusted Performance

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 latest unsteady performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Heritage Financial

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Heritage Financial are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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 CNB Financial and Heritage Financial

The main advantage of trading using opposite CNB Financial and Heritage Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CNB 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 CNB Financial 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.

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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.