Correlation Between Home Bancorp and First Northern

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

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

Diversification Opportunities for Home Bancorp and First Northern

-0.83

Correlation Coefficient

Home Bancorp  First Northern

Pay attention - limited upside

The 3 months correlation between Home and First is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding Home Bancorp and First Northern Community in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Northern Community 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 First Northern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Northern Community has no effect on the direction of Home Bancorp i.e., Home Bancorp and First Northern go up and down completely randomly.

Pair Corralation between Home Bancorp and First Northern

Given the investment horizon of 90 days Home Bancorp is expected to generate 3.36 times more return on investment than First Northern. However, Home Bancorp is 3.36 times more volatile than First Northern Community. It trades about 0.14 of its potential returns per unit of risk. First Northern Community is currently generating about -0.08 per unit of risk. If you would invest  4,256  in Home Bancorp on September 3, 2024 and sell it today you would earn a total of  817.00  from holding Home Bancorp or generate 19.2% return on investment over 90 days.

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

Home Bancorp  vs.  First Northern Community

Home Bancorp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Home Bancorp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating fundamental indicators, Home Bancorp reported solid returns over the last few months and may actually be approaching a breakup point.

First Northern Community

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Northern Community has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, First Northern is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Home Bancorp and First Northern

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

The idea behind Home Bancorp and First Northern Community 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.