Correlation Between First Capital and Home Federal

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

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

Diversification Opportunities for First Capital and Home Federal

0.14

Correlation Coefficient

First Capital  Home Federal

Average diversification

The 3 months correlation between First and Home is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding First Capital and Home Federal Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Federal Bancorp and First Capital 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 Capital are associated (or correlated) with Home Federal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Federal Bancorp has no effect on the direction of First Capital i.e., First Capital and Home Federal go up and down completely randomly.

Pair Corralation between First Capital and Home Federal

Given the investment horizon of 90 days First Capital is expected to generate 375.34 times less return on investment than Home Federal. But when comparing it to its historical volatility, First Capital is 48.26 times less risky than Home Federal. It trades about 0.02 of its potential returns per unit of risk. Home Federal Bancorp is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,250  in Home Federal Bancorp on August 30, 2024 and sell it today you would lose (14.00) from holding Home Federal Bancorp or give up 1.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	92.06%
Values	Daily Returns

First Capital  vs.  Home Federal Bancorp

First Capital

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Capital are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, First Capital is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Home Federal Bancorp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Home Federal Bancorp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile fundamental drivers, Home Federal disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Capital and Home Federal

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

The idea behind First Capital and Home Federal 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.