Correlation Between Home Federal and Alerus Financial

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

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

Diversification Opportunities for Home Federal and Alerus Financial

-0.53

Correlation Coefficient

Home Federal  Alerus Financial

Excellent diversification

The 3 months correlation between Home and Alerus is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Home Federal Bancorp and Alerus Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alerus Financial Corp and Home Federal 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 Federal Bancorp are associated (or correlated) with Alerus Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alerus Financial Corp has no effect on the direction of Home Federal i.e., Home Federal and Alerus Financial go up and down completely randomly.

Pair Corralation between Home Federal and Alerus Financial

Given the investment horizon of 90 days Home Federal Bancorp is expected to under-perform the Alerus Financial. In addition to that, Home Federal is 2.02 times more volatile than Alerus Financial Corp. It trades about -0.02 of its total potential returns per unit of risk. Alerus Financial Corp is currently generating about 0.01 per unit of volatility. If you would invest  1,958  in Alerus Financial Corp on October 22, 2024 and sell it today you would earn a total of  4.00  from holding Alerus Financial Corp or generate 0.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	84.21%
Values	Daily Returns

Home Federal Bancorp  vs.  Alerus Financial Corp

Home Federal Bancorp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Home Federal Bancorp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, Home Federal is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Alerus Financial Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alerus Financial Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Home Federal and Alerus Financial

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

The idea behind Home Federal Bancorp and Alerus Financial Corp 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.