Correlation Between First Community and Heritage Financial

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

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

Diversification Opportunities for First Community and Heritage Financial

0.73

Correlation Coefficient

First Community  Heritage Financial

Poor diversification

The 3 months correlation between First and Heritage is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding First Community and Heritage Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heritage Financial and First Community 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 Community 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 First Community i.e., First Community and Heritage Financial go up and down completely randomly.

Pair Corralation between First Community and Heritage Financial

Given the investment horizon of 90 days First Community is expected to under-perform the Heritage Financial. In addition to that, First Community is 1.27 times more volatile than Heritage Financial. It trades about -0.03 of its total potential returns per unit of risk. Heritage Financial is currently generating about 0.02 per unit of volatility. If you would invest  2,409  in Heritage Financial on December 29, 2024 and sell it today you would earn a total of  30.00  from holding Heritage Financial or generate 1.25% return on investment over 90 days.

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

First Community  vs.  Heritage Financial

First Community

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Community has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, First Community 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

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Heritage Financial are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Heritage Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Community and Heritage Financial

The main advantage of trading using opposite First Community and Heritage Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Community 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 First Community 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.