Correlation Between Home BancShares and CNB Financial

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

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

Diversification Opportunities for Home BancShares and CNB Financial

0.93

Correlation Coefficient

Home BancShares  CNB Financial

Almost no diversification

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

Pair Corralation between Home BancShares and CNB Financial

Given the investment horizon of 90 days Home BancShares is expected to generate 0.98 times more return on investment than CNB Financial. However, Home BancShares is 1.02 times less risky than CNB Financial. It trades about -0.28 of its potential returns per unit of risk. CNB Financial is currently generating about -0.43 per unit of risk. If you would invest  3,041  in Home BancShares on October 10, 2024 and sell it today you would lose (242.00) from holding Home BancShares or give up 7.96% of portfolio value over 90 days.

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

Home BancShares  vs.  CNB Financial

Home BancShares

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Home BancShares are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady primary indicators, Home BancShares may actually be approaching a critical reversion point that can send shares even higher in February 2025.

CNB Financial

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Home BancShares and CNB Financial

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

The idea behind Home BancShares and CNB Financial 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.