Correlation Between Home Federal and Citizens Financial

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

Diversification Opportunities for Home Federal and Citizens Financial

-0.17

Correlation Coefficient

Home Federal  Citizens Financial

Good diversification

The 3 months correlation between Home and Citizens is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Home Federal Bancorp and Citizens Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citizens 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 Citizens Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citizens Financial Corp has no effect on the direction of Home Federal i.e., Home Federal and Citizens Financial go up and down completely randomly.

Pair Corralation between Home Federal and Citizens Financial

Given the investment horizon of 90 days Home Federal Bancorp is expected to generate 15.35 times more return on investment than Citizens Financial. However, Home Federal is 15.35 times more volatile than Citizens Financial Corp. It trades about 0.04 of its potential returns per unit of risk. Citizens Financial Corp is currently generating about 0.05 per unit of risk. If you would invest  1,711  in Home Federal Bancorp on September 20, 2024 and sell it today you would lose (451.00) from holding Home Federal Bancorp or give up 26.36% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	76.12%
Values	Daily Returns

Home Federal Bancorp  vs.  Citizens Financial Corp

Home Federal Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Home Federal Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's fundamental drivers remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Citizens Financial Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citizens Financial Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Citizens Financial showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Home Federal and Citizens Financial

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

The idea behind Home Federal Bancorp and Citizens 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.

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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.