Correlation Between Home Federal and Waterstone Financial

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

Diversification Opportunities for Home Federal and Waterstone Financial

-0.05

Correlation Coefficient

Home Federal  Waterstone Financial

Good diversification

The 3 months correlation between Home and Waterstone is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Home Federal Bancorp and Waterstone Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waterstone 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 Waterstone Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waterstone Financial has no effect on the direction of Home Federal i.e., Home Federal and Waterstone Financial go up and down completely randomly.

Pair Corralation between Home Federal and Waterstone Financial

Given the investment horizon of 90 days Home Federal Bancorp is expected to generate 1.54 times more return on investment than Waterstone Financial. However, Home Federal is 1.54 times more volatile than Waterstone Financial. It trades about 0.06 of its potential returns per unit of risk. Waterstone Financial is currently generating about -0.25 per unit of risk. If you would invest  1,227  in Home Federal Bancorp on September 20, 2024 and sell it today you would earn a total of  28.00  from holding Home Federal Bancorp or generate 2.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Home Federal Bancorp  vs.  Waterstone Financial

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.

Waterstone Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Waterstone Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's fundamental drivers remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Home Federal and Waterstone Financial

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

The idea behind Home Federal Bancorp and Waterstone Financial 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.