Correlation Between Financial Institutions and Heritage Commerce

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

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

Diversification Opportunities for Financial Institutions and Heritage Commerce

0.88

Correlation Coefficient

Financial Institutions  Heritage Commerce

Very poor diversification

The 3 months correlation between Financial and Heritage is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Financial Institutions 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 Financial Institutions 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 Financial Institutions 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 Financial Institutions i.e., Financial Institutions and Heritage Commerce go up and down completely randomly.

Pair Corralation between Financial Institutions and Heritage Commerce

Given the investment horizon of 90 days Financial Institutions is expected to generate 1.12 times more return on investment than Heritage Commerce. However, Financial Institutions is 1.12 times more volatile than Heritage Commerce Corp. It trades about 0.05 of its potential returns per unit of risk. Heritage Commerce Corp is currently generating about 0.05 per unit of risk. If you would invest  2,528  in Financial Institutions on August 31, 2024 and sell it today you would earn a total of  164.00  from holding Financial Institutions or generate 6.49% return on investment over 90 days.

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

Financial Institutions  vs.  Heritage Commerce Corp

Financial Institutions

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Institutions are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, Financial Institutions may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Heritage Commerce Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Heritage Commerce Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile fundamental drivers, Heritage Commerce may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Financial Institutions and Heritage Commerce

The main advantage of trading using opposite Financial Institutions and Heritage Commerce positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Institutions 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 Financial Institutions 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 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.