Correlation Between Capitol Federal and Heritage Financial

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

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

Diversification Opportunities for Capitol Federal and Heritage Financial

0.51

Correlation Coefficient

Capitol Federal  Heritage Financial

Very weak diversification

The 3 months correlation between Capitol and Heritage is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Capitol Federal Financial and Heritage Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heritage Financial and Capitol Federal 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 Capitol Federal 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 Capitol Federal i.e., Capitol Federal and Heritage Financial go up and down completely randomly.

Pair Corralation between Capitol Federal and Heritage Financial

Given the investment horizon of 90 days Capitol Federal Financial is expected to under-perform the Heritage Financial. But the stock apears to be less risky and, when comparing its historical volatility, Capitol Federal Financial is 1.09 times less risky than Heritage Financial. The stock trades about -0.02 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  2,409  in Heritage Financial on December 29, 2024 and sell it today you would earn a total of  5.00  from holding Heritage Financial or generate 0.21% return on investment over 90 days.

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

Capitol Federal Financial  vs.  Heritage Financial

Capitol Federal Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Capitol Federal Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Capitol Federal is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the 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 Capitol Federal and Heritage Financial

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

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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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.