Correlation Between First Community and Heritage Commerce

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

Diversification Opportunities for First Community and Heritage Commerce

0.72

Correlation Coefficient

First Community  Heritage Commerce

Poor diversification

The 3 months correlation between First and Heritage is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding First Community and Heritage Commerce Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heritage Commerce Corp 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 Commerce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heritage Commerce Corp has no effect on the direction of First Community i.e., First Community and Heritage Commerce go up and down completely randomly.

Pair Corralation between First Community and Heritage Commerce

Given the investment horizon of 90 days First Community is expected to under-perform the Heritage Commerce. In addition to that, First Community is 1.23 times more volatile than Heritage Commerce Corp. It trades about -0.07 of its total potential returns per unit of risk. Heritage Commerce Corp is currently generating about -0.02 per unit of volatility. If you would invest  1,038  in Heritage Commerce Corp on December 5, 2024 and sell it today you would lose (26.00) from holding Heritage Commerce Corp or give up 2.5% of portfolio value over 90 days.

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

First Community  vs.  Heritage Commerce Corp

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 latest unsteady performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Heritage Commerce Corp

Risk-Adjusted Performance

Weak

Over the last 90 days Heritage Commerce Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental drivers, Heritage Commerce is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with First Community and Heritage Commerce

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

The idea behind First Community and Heritage Commerce Corp 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.