Correlation Between First Bank and HomeTrust Bancshares

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

Diversification Opportunities for First Bank and HomeTrust Bancshares

0.41

Correlation Coefficient

First Bank  HomeTrust Bancshares

Very weak diversification

The 3 months correlation between First and HomeTrust is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding First Bank and HomeTrust Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HomeTrust Bancshares and First Bank 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 Bank 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 Bank i.e., First Bank and HomeTrust Bancshares go up and down completely randomly.

Pair Corralation between First Bank and HomeTrust Bancshares

Given the investment horizon of 90 days First Bank is expected to generate 34.72 times less return on investment than HomeTrust Bancshares. But when comparing it to its historical volatility, First Bank is 1.11 times less risky than HomeTrust Bancshares. It trades about 0.0 of its potential returns per unit of risk. HomeTrust Bancshares is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,632  in HomeTrust Bancshares on September 25, 2024 and sell it today you would earn a total of  771.00  from holding HomeTrust Bancshares or generate 29.29% return on investment over 90 days.

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

First Bank  vs.  HomeTrust Bancshares

First Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, First Bank is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

HomeTrust Bancshares

Risk-Adjusted Performance

0 of 100

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 Bank and HomeTrust Bancshares

The main advantage of trading using opposite First Bank and HomeTrust Bancshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Bank 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 Bank 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.