Correlation Between Home Federal and MidWestOne Financial

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

Diversification Opportunities for Home Federal and MidWestOne Financial

0.08

Correlation Coefficient

Home Federal  MidWestOne Financial

Significant diversification

The 3 months correlation between Home and MidWestOne is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Home Federal Bancorp and MidWestOne Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MidWestOne Financial 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 MidWestOne Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MidWestOne Financial has no effect on the direction of Home Federal i.e., Home Federal and MidWestOne Financial go up and down completely randomly.

Pair Corralation between Home Federal and MidWestOne Financial

Given the investment horizon of 90 days Home Federal Bancorp is expected to generate 34.13 times more return on investment than MidWestOne Financial. However, Home Federal is 34.13 times more volatile than MidWestOne Financial Group. It trades about 0.07 of its potential returns per unit of risk. MidWestOne Financial Group is currently generating about 0.12 per unit of risk. If you would invest  1,182  in Home Federal Bancorp on September 3, 2024 and sell it today you would earn a total of  54.00  from holding Home Federal Bancorp or generate 4.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	91.57%
Values	Daily Returns

Home Federal Bancorp  vs.  MidWestOne Financial Group

Home Federal Bancorp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Home Federal Bancorp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating fundamental drivers, Home Federal disclosed solid returns over the last few months and may actually be approaching a breakup point.

MidWestOne Financial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MidWestOne Financial Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting technical and fundamental indicators, MidWestOne Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Home Federal and MidWestOne Financial

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

The idea behind Home Federal Bancorp and MidWestOne Financial Group 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.