Correlation Between City Holding and Heritage Financial

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

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

Diversification Opportunities for City Holding and Heritage Financial

0.93

Correlation Coefficient

City Holding  Heritage Financial

Almost no diversification

The 3 months correlation between City and Heritage is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding City Holding and Heritage Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heritage Financial and City Holding 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 City Holding 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 City Holding i.e., City Holding and Heritage Financial go up and down completely randomly.

Pair Corralation between City Holding and Heritage Financial

Given the investment horizon of 90 days City Holding is expected to under-perform the Heritage Financial. But the stock apears to be less risky and, when comparing its historical volatility, City Holding is 1.19 times less risky than Heritage Financial. The stock trades about -0.01 of its potential returns per unit of risk. The Heritage Financial is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,218  in Heritage Financial on October 15, 2024 and sell it today you would earn a total of  108.00  from holding Heritage Financial or generate 4.87% return on investment over 90 days.

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

City Holding  vs.  Heritage Financial

City Holding

Risk-Adjusted Performance

0 of 100

Very Weak

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

Heritage Financial

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Heritage Financial are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Heritage Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with City Holding and Heritage Financial

The main advantage of trading using opposite City Holding and Heritage Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if City Holding 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 City Holding 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.