Correlation Between Horizon Bancorp and First Bancorp

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

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

Diversification Opportunities for Horizon Bancorp and First Bancorp

0.54

Correlation Coefficient

Horizon Bancorp  First Bancorp

Very weak diversification

The 3 months correlation between Horizon and First is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Horizon Bancorp and First Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Bancorp and Horizon 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 Horizon Bancorp are associated (or correlated) with First Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Bancorp has no effect on the direction of Horizon Bancorp i.e., Horizon Bancorp and First Bancorp go up and down completely randomly.

Pair Corralation between Horizon Bancorp and First Bancorp

Given the investment horizon of 90 days Horizon Bancorp is expected to generate 1.07 times more return on investment than First Bancorp. However, Horizon Bancorp is 1.07 times more volatile than First Bancorp. It trades about -0.04 of its potential returns per unit of risk. First Bancorp is currently generating about -0.08 per unit of risk. If you would invest  1,590  in Horizon Bancorp on December 28, 2024 and sell it today you would lose (75.00) from holding Horizon Bancorp or give up 4.72% of portfolio value over 90 days.

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

Horizon Bancorp  vs.  First Bancorp

Horizon Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Horizon Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Horizon Bancorp is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

First Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Horizon Bancorp and First Bancorp

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

The idea behind Horizon Bancorp and First 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.