Correlation Between Heritage Financial and PCB Bancorp

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

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

Diversification Opportunities for Heritage Financial and PCB Bancorp

0.42

Correlation Coefficient

Heritage Financial  PCB Bancorp

Very weak diversification

The 3 months correlation between Heritage and PCB is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Heritage Financial and PCB Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PCB 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 PCB Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PCB Bancorp has no effect on the direction of Heritage Financial i.e., Heritage Financial and PCB Bancorp go up and down completely randomly.

Pair Corralation between Heritage Financial and PCB Bancorp

Given the investment horizon of 90 days Heritage Financial is expected to generate 0.91 times more return on investment than PCB Bancorp. However, Heritage Financial is 1.1 times less risky than PCB Bancorp. It trades about 0.02 of its potential returns per unit of risk. PCB Bancorp is currently generating about -0.04 per unit of risk. If you would invest  2,409  in Heritage Financial on December 28, 2024 and sell it today you would earn a total of  30.00  from holding Heritage Financial or generate 1.25% return on investment over 90 days.

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

Heritage Financial  vs.  PCB Bancorp

Heritage Financial

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Heritage Financial are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

PCB Bancorp

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Heritage Financial and PCB Bancorp

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

The idea behind Heritage Financial and PCB 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.