Correlation Between Home Federal and Prosperity Bancshares

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

Diversification Opportunities for Home Federal and Prosperity Bancshares

-0.1

Correlation Coefficient

Home Federal  Prosperity Bancshares

Good diversification

The 3 months correlation between Home and Prosperity is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Home Federal Bancorp and Prosperity Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prosperity Bancshares 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 Prosperity Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prosperity Bancshares has no effect on the direction of Home Federal i.e., Home Federal and Prosperity Bancshares go up and down completely randomly.

Pair Corralation between Home Federal and Prosperity Bancshares

Given the investment horizon of 90 days Home Federal Bancorp is expected to generate 2.07 times more return on investment than Prosperity Bancshares. However, Home Federal is 2.07 times more volatile than Prosperity Bancshares. It trades about 0.11 of its potential returns per unit of risk. Prosperity Bancshares is currently generating about -0.33 per unit of risk. If you would invest  1,230  in Home Federal Bancorp on October 10, 2024 and sell it today you would earn a total of  59.00  from holding Home Federal Bancorp or generate 4.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Home Federal Bancorp  vs.  Prosperity Bancshares

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 fragile fundamental drivers, Home Federal may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Prosperity Bancshares

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Prosperity Bancshares are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Prosperity Bancshares is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Home Federal and Prosperity Bancshares

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

The idea behind Home Federal Bancorp and Prosperity Bancshares 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.