Correlation Between Heritage Financial and Great Southern

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

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

Diversification Opportunities for Heritage Financial and Great Southern

0.78

Correlation Coefficient

Heritage Financial  Great Southern

Poor diversification

The 3 months correlation between Heritage and Great is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Heritage Financial and Great Southern Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great Southern Bancorp 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 Great Southern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great Southern Bancorp has no effect on the direction of Heritage Financial i.e., Heritage Financial and Great Southern go up and down completely randomly.

Pair Corralation between Heritage Financial and Great Southern

Given the investment horizon of 90 days Heritage Financial is expected to under-perform the Great Southern. In addition to that, Heritage Financial is 1.04 times more volatile than Great Southern Bancorp. It trades about -0.03 of its total potential returns per unit of risk. Great Southern Bancorp is currently generating about -0.02 per unit of volatility. If you would invest  6,138  in Great Southern Bancorp on November 20, 2024 and sell it today you would lose (165.00) from holding Great Southern Bancorp or give up 2.69% 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.  Great Southern Bancorp

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.

Great Southern Bancorp

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Heritage Financial and Great Southern

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

The idea behind Heritage Financial and Great Southern Bancorp 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.