Correlation Between Home Bancorp and Community Trust

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

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

Diversification Opportunities for Home Bancorp and Community Trust

0.95

Correlation Coefficient

Home Bancorp  Community Trust

Almost no diversification

The 3 months correlation between Home and Community is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Home Bancorp and Community Trust Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Community Trust Bancorp 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 Community Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Community Trust Bancorp has no effect on the direction of Home Bancorp i.e., Home Bancorp and Community Trust go up and down completely randomly.

Pair Corralation between Home Bancorp and Community Trust

Given the investment horizon of 90 days Home Bancorp is expected to generate 2.53 times less return on investment than Community Trust. But when comparing it to its historical volatility, Home Bancorp is 1.62 times less risky than Community Trust. It trades about 0.09 of its potential returns per unit of risk. Community Trust Bancorp is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  5,273  in Community Trust Bancorp on August 31, 2024 and sell it today you would earn a total of  625.00  from holding Community Trust Bancorp or generate 11.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.65%
Values	Daily Returns

Home Bancorp  vs.  Community Trust Bancorp

Home Bancorp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Home Bancorp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting fundamental indicators, Home Bancorp reported solid returns over the last few months and may actually be approaching a breakup point.

Community Trust Bancorp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Community Trust Bancorp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak fundamental drivers, Community Trust demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Home Bancorp and Community Trust

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

The idea behind Home Bancorp and Community Trust 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.