Correlation Between First Bancorp and HomeTrust Bancshares

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

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

Diversification Opportunities for First Bancorp and HomeTrust Bancshares

0.32

Correlation Coefficient

First Bancorp  HomeTrust Bancshares

Weak diversification

The 3 months correlation between First and HomeTrust is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding First Bancorp and HomeTrust Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HomeTrust Bancshares and First Bancorp 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 First Bancorp are associated (or correlated) with HomeTrust Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HomeTrust Bancshares has no effect on the direction of First Bancorp i.e., First Bancorp and HomeTrust Bancshares go up and down completely randomly.

Pair Corralation between First Bancorp and HomeTrust Bancshares

Given the investment horizon of 90 days First Bancorp is expected to under-perform the HomeTrust Bancshares. In addition to that, First Bancorp is 1.07 times more volatile than HomeTrust Bancshares. It trades about -0.1 of its total potential returns per unit of risk. HomeTrust Bancshares is currently generating about -0.01 per unit of volatility. If you would invest  3,714  in HomeTrust Bancshares on December 2, 2024 and sell it today you would lose (59.00) from holding HomeTrust Bancshares or give up 1.59% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	91.8%
Values	Daily Returns

First Bancorp  vs.  HomeTrust Bancshares

First Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak 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.

HomeTrust Bancshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days HomeTrust Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, HomeTrust Bancshares is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with First Bancorp and HomeTrust Bancshares

The main advantage of trading using opposite First Bancorp and HomeTrust Bancshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Bancorp position performs unexpectedly, HomeTrust Bancshares 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 HomeTrust Bancshares will offset losses from the drop in HomeTrust Bancshares' long position.

The idea behind First Bancorp and HomeTrust Bancshares 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.