Correlation Between Enterprise Financial and Home Bancorp

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

Diversification Opportunities for Enterprise Financial and Home Bancorp

0.93

Correlation Coefficient

Enterprise Financial  Home Bancorp

Almost no diversification

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

Pair Corralation between Enterprise Financial and Home Bancorp

Given the investment horizon of 90 days Enterprise Financial is expected to generate 1.08 times less return on investment than Home Bancorp. In addition to that, Enterprise Financial is 1.14 times more volatile than Home Bancorp. It trades about 0.11 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 3, 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

Enterprise Financial Services  vs.  Home Bancorp

Enterprise Financial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Enterprise Financial Services are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Enterprise Financial exhibited solid returns over the last few months and may actually be approaching a breakup point.

Home Bancorp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Home Bancorp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating fundamental indicators, Home Bancorp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Enterprise Financial and Home Bancorp

The main advantage of trading using opposite Enterprise Financial and Home Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Enterprise 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 Enterprise Financial Services 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.