Correlation Between Home Bancorp and Mercantile Bank

Can any of the company-specific risk be diversified away by investing in both Home Bancorp and Mercantile 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 Mercantile 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 Mercantile Bank, you can compare the effects of market volatilities on Home Bancorp and Mercantile 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 Mercantile Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Bancorp and Mercantile Bank.

Diversification Opportunities for Home Bancorp and Mercantile Bank

0.87

Correlation Coefficient

Home Bancorp  Mercantile Bank

Very poor diversification

The 3 months correlation between Home and Mercantile is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Home Bancorp and Mercantile Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercantile 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 Mercantile Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mercantile Bank has no effect on the direction of Home Bancorp i.e., Home Bancorp and Mercantile Bank go up and down completely randomly.

Pair Corralation between Home Bancorp and Mercantile Bank

Given the investment horizon of 90 days Home Bancorp is expected to generate 0.94 times more return on investment than Mercantile Bank. However, Home Bancorp is 1.07 times less risky than Mercantile Bank. It trades about 0.02 of its potential returns per unit of risk. Mercantile Bank is currently generating about 0.0 per unit of risk. If you would invest  4,573  in Home Bancorp on December 29, 2024 and sell it today you would earn a total of  65.00  from holding Home Bancorp or generate 1.42% 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.  Mercantile Bank

Home Bancorp

Risk-Adjusted Performance

Weak

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.

Mercantile Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mercantile Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Mercantile Bank 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 Mercantile Bank

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

The idea behind Home Bancorp and Mercantile Bank 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.