Correlation Between Heritage Financial and City Holding

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

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

Diversification Opportunities for Heritage Financial and City Holding

0.93

Correlation Coefficient

Heritage Financial  City Holding

Almost no diversification

The 3 months correlation between Heritage and City is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Heritage Financial and City Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City Holding 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 City Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of City Holding has no effect on the direction of Heritage Financial i.e., Heritage Financial and City Holding go up and down completely randomly.

Pair Corralation between Heritage Financial and City Holding

Given the investment horizon of 90 days Heritage Financial is expected to under-perform the City Holding. In addition to that, Heritage Financial is 1.34 times more volatile than City Holding. It trades about -0.35 of its total potential returns per unit of risk. City Holding is currently generating about -0.41 per unit of volatility. If you would invest  12,959  in City Holding on October 15, 2024 and sell it today you would lose (1,363) from holding City Holding or give up 10.52% of portfolio value over 90 days.

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

Heritage Financial  vs.  City Holding

Heritage Financial

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Heritage Financial are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Heritage Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

City Holding

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Heritage Financial and City Holding

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

The idea behind Heritage Financial and City Holding 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.