Correlation Between Heritage Financial and Business First

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

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

Diversification Opportunities for Heritage Financial and Business First

0.73

Correlation Coefficient

Heritage Financial  Business First

Poor diversification

The 3 months correlation between Heritage and Business is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Heritage Financial and Business First Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Business First Bancshares 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 Business First. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Business First Bancshares has no effect on the direction of Heritage Financial i.e., Heritage Financial and Business First go up and down completely randomly.

Pair Corralation between Heritage Financial and Business First

Given the investment horizon of 90 days Heritage Financial is expected to generate 0.83 times more return on investment than Business First. However, Heritage Financial is 1.2 times less risky than Business First. It trades about -0.02 of its potential returns per unit of risk. Business First Bancshares is currently generating about -0.05 per unit of risk. If you would invest  2,603  in Heritage Financial on November 30, 2024 and sell it today you would lose (76.00) from holding Heritage Financial or give up 2.92% 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.  Business First Bancshares

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.

Business First Bancshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Business First Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Business First is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Heritage Financial and Business First

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

The idea behind Heritage Financial and Business First 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.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.