Correlation Between Home Bancorp and ESSA Bancorp

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

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

Diversification Opportunities for Home Bancorp and ESSA Bancorp

0.89

Correlation Coefficient

Home Bancorp  ESSA Bancorp

Very poor diversification

The 3 months correlation between Home and ESSA is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Home Bancorp and ESSA Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESSA 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 ESSA Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESSA Bancorp has no effect on the direction of Home Bancorp i.e., Home Bancorp and ESSA Bancorp go up and down completely randomly.

Pair Corralation between Home Bancorp and ESSA Bancorp

Given the investment horizon of 90 days Home Bancorp is expected to generate 1.22 times more return on investment than ESSA Bancorp. However, Home Bancorp is 1.22 times more volatile than ESSA Bancorp. It trades about 0.01 of its potential returns per unit of risk. ESSA Bancorp is currently generating about 0.0 per unit of risk. If you would invest  4,589  in Home Bancorp on December 27, 2024 and sell it today you would earn a total of  17.00  from holding Home Bancorp or generate 0.37% return on investment over 90 days.

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

Home Bancorp  vs.  ESSA Bancorp

Home Bancorp

Risk-Adjusted Performance

Very Weak

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.

ESSA Bancorp

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Home Bancorp and ESSA Bancorp

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

The idea behind Home Bancorp and ESSA 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.