Correlation Between Home Bancorp and Carter Bank

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

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

Diversification Opportunities for Home Bancorp and Carter Bank

0.76

Correlation Coefficient

Home Bancorp  Carter Bank

Poor diversification

The 3 months correlation between Home and Carter is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Home Bancorp and Carter Bank and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carter Bank and Home Bancorp 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 Home Bancorp are associated (or correlated) with Carter Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carter Bank has no effect on the direction of Home Bancorp i.e., Home Bancorp and Carter Bank go up and down completely randomly.

Pair Corralation between Home Bancorp and Carter Bank

Given the investment horizon of 90 days Home Bancorp is expected to generate 1.06 times more return on investment than Carter Bank. However, Home Bancorp is 1.06 times more volatile than Carter Bank and. It trades about -0.27 of its potential returns per unit of risk. Carter Bank and is currently generating about -0.3 per unit of risk. If you would invest  4,951  in Home Bancorp on October 11, 2024 and sell it today you would lose (519.00) from holding Home Bancorp or give up 10.48% of portfolio value over 90 days.

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

Home Bancorp  vs.  Carter Bank and

Home Bancorp

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Home Bancorp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental indicators, Home Bancorp is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Carter Bank

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Home Bancorp and Carter Bank

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

The idea behind Home Bancorp and Carter Bank and 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.