Correlation Between Home Bancorp and Citizens Financial

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

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

Diversification Opportunities for Home Bancorp and Citizens Financial

0.77

Correlation Coefficient

Home Bancorp  Citizens Financial

Poor diversification

The 3 months correlation between Home and Citizens is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Home Bancorp and Citizens Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citizens Financial 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 Citizens Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citizens Financial has no effect on the direction of Home Bancorp i.e., Home Bancorp and Citizens Financial go up and down completely randomly.

Pair Corralation between Home Bancorp and Citizens Financial

Given the investment horizon of 90 days Home Bancorp is expected to under-perform the Citizens Financial. But the stock apears to be less risky and, when comparing its historical volatility, Home Bancorp is 1.71 times less risky than Citizens Financial. The stock trades about -0.01 of its potential returns per unit of risk. The Citizens Financial Services is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  5,907  in Citizens Financial Services on October 26, 2024 and sell it today you would earn a total of  1.00  from holding Citizens Financial Services or generate 0.02% return on investment over 90 days.

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

Home Bancorp  vs.  Citizens Financial Services

Home Bancorp

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Home Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Citizens Financial

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Citizens Financial Services are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Citizens Financial is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Home Bancorp and Citizens Financial

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

The idea behind Home Bancorp and Citizens Financial Services 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.