Correlation Between First Capital and HomeTrust Bancshares

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

Diversification Opportunities for First Capital and HomeTrust Bancshares

0.23

Correlation Coefficient

First Capital  HomeTrust Bancshares

Modest diversification

The 3 months correlation between First and HomeTrust is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding First Capital and HomeTrust Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HomeTrust Bancshares 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 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 Capital i.e., First Capital and HomeTrust Bancshares go up and down completely randomly.

Pair Corralation between First Capital and HomeTrust Bancshares

Given the investment horizon of 90 days First Capital is expected to generate 1.23 times more return on investment than HomeTrust Bancshares. However, First Capital is 1.23 times more volatile than HomeTrust Bancshares. It trades about 0.46 of its potential returns per unit of risk. HomeTrust Bancshares is currently generating about -0.05 per unit of risk. If you would invest  3,176  in First Capital on December 1, 2024 and sell it today you would earn a total of  529.00  from holding First Capital or generate 16.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	80.95%
Values	Daily Returns

First Capital  vs.  HomeTrust Bancshares

First Capital

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Capital are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, First Capital reported solid returns over the last few months and may actually be approaching a breakup point.

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 Capital and HomeTrust Bancshares

The main advantage of trading using opposite First Capital and HomeTrust Bancshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Capital 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 Capital 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.