Correlation Between Home Federal and Erste Group

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

Diversification Opportunities for Home Federal and Erste Group

0.29

Correlation Coefficient

Home Federal  Erste Group

Modest diversification

The 3 months correlation between Home and Erste is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Home Federal Bancorp and Erste Group Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Erste Group Bank 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 Erste Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Erste Group Bank has no effect on the direction of Home Federal i.e., Home Federal and Erste Group go up and down completely randomly.

Pair Corralation between Home Federal and Erste Group

Given the investment horizon of 90 days Home Federal Bancorp is expected to generate 12.9 times more return on investment than Erste Group. However, Home Federal is 12.9 times more volatile than Erste Group Bank. It trades about 0.04 of its potential returns per unit of risk. Erste Group Bank is currently generating about 0.06 per unit of risk. If you would invest  1,655  in Home Federal Bancorp on September 28, 2024 and sell it today you would lose (357.00) from holding Home Federal Bancorp or give up 21.57% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.54%
Values	Daily Returns

Home Federal Bancorp  vs.  Erste Group Bank

Home Federal Bancorp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Home Federal Bancorp are ranked lower than 3 (%) 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.

Erste Group Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Erste Group Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Erste Group reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Home Federal and Erste Group

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

The idea behind Home Federal Bancorp and Erste Group 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 Stocks Directory module to find actively traded stocks across global markets.