Correlation Between First Community and HomeTrust Bancshares

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

Diversification Opportunities for First Community and HomeTrust Bancshares

0.67

Correlation Coefficient

First Community  HomeTrust Bancshares

Poor diversification

The 3 months correlation between First and HomeTrust is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding First Community and HomeTrust Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HomeTrust Bancshares 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 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 Community i.e., First Community and HomeTrust Bancshares go up and down completely randomly.

Pair Corralation between First Community and HomeTrust Bancshares

Given the investment horizon of 90 days First Community is expected to generate 0.79 times more return on investment than HomeTrust Bancshares. However, First Community is 1.26 times less risky than HomeTrust Bancshares. It trades about 0.17 of its potential returns per unit of risk. HomeTrust Bancshares is currently generating about 0.04 per unit of risk. If you would invest  2,140  in First Community on September 2, 2024 and sell it today you would earn a total of  461.00  from holding First Community or generate 21.54% 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.  HomeTrust Bancshares

First Community

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Community are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady fundamental indicators, First Community displayed solid returns over the last few months and may actually be approaching a breakup point.

HomeTrust Bancshares

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HomeTrust Bancshares are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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 Community and HomeTrust Bancshares

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

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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.