Correlation Between Home Federal and Coastal Financial
Can any of the company-specific risk be diversified away by investing in both Home Federal and Coastal 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 Coastal 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 Coastal Financial Corp, you can compare the effects of market volatilities on Home Federal and Coastal 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 Coastal Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Federal and Coastal Financial.
Diversification Opportunities for Home Federal and Coastal Financial
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Home and Coastal is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Home Federal Bancorp and Coastal Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coastal 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 Coastal Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coastal Financial Corp has no effect on the direction of Home Federal i.e., Home Federal and Coastal Financial go up and down completely randomly.
Pair Corralation between Home Federal and Coastal Financial
Given the investment horizon of 90 days Home Federal is expected to generate 1.37 times less return on investment than Coastal Financial. But when comparing it to its historical volatility, Home Federal Bancorp is 1.03 times less risky than Coastal Financial. It trades about 0.05 of its potential returns per unit of risk. Coastal Financial Corp is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 8,372 in Coastal Financial Corp on December 27, 2024 and sell it today you would earn a total of 831.00 from holding Coastal Financial Corp or generate 9.93% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 78.69% |
Values | Daily Returns |
Home Federal Bancorp vs. Coastal Financial Corp
Performance |
Timeline |
Home Federal Bancorp |
Coastal Financial Corp |
Home Federal and Coastal Financial Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Home Federal and Coastal Financial
The main advantage of trading using opposite Home Federal and Coastal Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Federal position performs unexpectedly, Coastal 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 Coastal Financial will offset losses from the drop in Coastal Financial's long position.The idea behind Home Federal Bancorp and Coastal 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.Coastal Financial vs. Affinity Bancshares | Coastal Financial vs. Home Federal Bancorp | Coastal Financial vs. First Business Financial | Coastal Financial vs. Old Point Financial |
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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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