Correlation Between Home Federal and 1st Source

Can any of the company-specific risk be diversified away by investing in both Home Federal and 1st Source 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 1st Source 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 1st Source, you can compare the effects of market volatilities on Home Federal and 1st Source 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 1st Source. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Federal and 1st Source.

Diversification Opportunities for Home Federal and 1st Source

-0.14

Correlation Coefficient

Home Federal  1st Source

Good diversification

The 3 months correlation between Home and 1st is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Home Federal Bancorp and 1st Source in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 1st Source 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 1st Source. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 1st Source has no effect on the direction of Home Federal i.e., Home Federal and 1st Source go up and down completely randomly.

Pair Corralation between Home Federal and 1st Source

Given the investment horizon of 90 days Home Federal Bancorp is expected to generate 25.02 times more return on investment than 1st Source. However, Home Federal is 25.02 times more volatile than 1st Source. It trades about 0.04 of its potential returns per unit of risk. 1st Source is currently generating about 0.03 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 (456.00) from holding Home Federal Bancorp or give up 26.65% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.3%
Values	Daily Returns

Home Federal Bancorp  vs.  1st Source

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.

1st Source

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days 1st Source has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, 1st Source is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Home Federal and 1st Source

The main advantage of trading using opposite Home Federal and 1st Source positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Federal position performs unexpectedly, 1st Source 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 1st Source will offset losses from the drop in 1st Source's long position.

The idea behind Home Federal Bancorp and 1st Source 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.