Correlation Between German American and Horizon Bancorp

Can any of the company-specific risk be diversified away by investing in both German American and Horizon Bancorp 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 German American and Horizon Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for German American and Horizon Bancorp

0.79

Correlation Coefficient

German American  Horizon Bancorp

Poor diversification

The 3 months correlation between German and Horizon is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding German American Bancorp and Horizon Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Horizon Bancorp and German American 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 German American Bancorp are associated (or correlated) with Horizon Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Horizon Bancorp has no effect on the direction of German American i.e., German American and Horizon Bancorp go up and down completely randomly.

Pair Corralation between German American and Horizon Bancorp

Given the investment horizon of 90 days German American Bancorp is expected to under-perform the Horizon Bancorp. But the stock apears to be less risky and, when comparing its historical volatility, German American Bancorp is 1.26 times less risky than Horizon Bancorp. The stock trades about -0.07 of its potential returns per unit of risk. The Horizon Bancorp is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  1,590  in Horizon Bancorp on December 29, 2024 and sell it today you would lose (74.00) from holding Horizon Bancorp or give up 4.65% of portfolio value over 90 days.

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

German American Bancorp  vs.  Horizon Bancorp

German American Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days German American Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, German American is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Horizon Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Horizon Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Horizon Bancorp is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with German American and Horizon Bancorp

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

The idea behind German American Bancorp and Horizon Bancorp 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.