Correlation Between Heritage Financial and BankFinancial

Can any of the company-specific risk be diversified away by investing in both Heritage Financial and BankFinancial 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 Heritage Financial and BankFinancial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Heritage Financial and BankFinancial, you can compare the effects of market volatilities on Heritage Financial and BankFinancial 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 Heritage Financial with a short position of BankFinancial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Heritage Financial and BankFinancial.

Diversification Opportunities for Heritage Financial and BankFinancial

0.67

Correlation Coefficient

Heritage Financial  BankFinancial

Poor diversification

The 3 months correlation between Heritage and BankFinancial is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Heritage Financial and BankFinancial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BankFinancial and Heritage Financial 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 Heritage Financial are associated (or correlated) with BankFinancial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BankFinancial has no effect on the direction of Heritage Financial i.e., Heritage Financial and BankFinancial go up and down completely randomly.

Pair Corralation between Heritage Financial and BankFinancial

Given the investment horizon of 90 days Heritage Financial is expected to under-perform the BankFinancial. But the stock apears to be less risky and, when comparing its historical volatility, Heritage Financial is 1.1 times less risky than BankFinancial. The stock trades about -0.02 of its potential returns per unit of risk. The BankFinancial is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,333  in BankFinancial on December 1, 2024 and sell it today you would lose (9.00) from holding BankFinancial or give up 0.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Heritage Financial  vs.  BankFinancial

Heritage Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Heritage Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Heritage Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

BankFinancial

Risk-Adjusted Performance

Very Weak

Over the last 90 days BankFinancial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, BankFinancial is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Heritage Financial and BankFinancial

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

The idea behind Heritage Financial and BankFinancial 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.

Check out your portfolio center.

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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.