Correlation Between Home Federal and Income Opportunity

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

Diversification Opportunities for Home Federal and Income Opportunity

0.02

Correlation Coefficient

Home Federal  Income Opportunity

Significant diversification

The 3 months correlation between Home and Income is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Home Federal Bancorp and Income Opportunity Realty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Income Opportunity Realty 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 Income Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Income Opportunity Realty has no effect on the direction of Home Federal i.e., Home Federal and Income Opportunity go up and down completely randomly.

Pair Corralation between Home Federal and Income Opportunity

Given the investment horizon of 90 days Home Federal is expected to generate 7.68 times less return on investment than Income Opportunity. But when comparing it to its historical volatility, Home Federal Bancorp is 1.16 times less risky than Income Opportunity. It trades about 0.07 of its potential returns per unit of risk. Income Opportunity Realty is currently generating about 0.48 of returns per unit of risk over similar time horizon. If you would invest  1,601  in Income Opportunity Realty on September 18, 2024 and sell it today you would earn a total of  229.00  from holding Income Opportunity Realty or generate 14.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	70.0%
Values	Daily Returns

Home Federal Bancorp  vs.  Income Opportunity Realty

Home Federal Bancorp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Home Federal Bancorp are ranked lower than 1 (%) 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.

Income Opportunity Realty

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Income Opportunity Realty are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Income Opportunity reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Home Federal and Income Opportunity

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

The idea behind Home Federal Bancorp and Income Opportunity Realty 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..