Correlation Between Home BancShares and Pinnacle Financial

Can any of the company-specific risk be diversified away by investing in both Home BancShares and Pinnacle 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 Pinnacle 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 Pinnacle Financial Partners, you can compare the effects of market volatilities on Home BancShares and Pinnacle 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 Pinnacle Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home BancShares and Pinnacle Financial.

Diversification Opportunities for Home BancShares and Pinnacle Financial

0.74

Correlation Coefficient

Home BancShares  Pinnacle Financial

Poor diversification

The 3 months correlation between Home and Pinnacle is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Home BancShares and Pinnacle Financial Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pinnacle 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 Pinnacle Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pinnacle Financial has no effect on the direction of Home BancShares i.e., Home BancShares and Pinnacle Financial go up and down completely randomly.

Pair Corralation between Home BancShares and Pinnacle Financial

Given the investment horizon of 90 days Home BancShares is expected to generate 0.76 times more return on investment than Pinnacle Financial. However, Home BancShares is 1.31 times less risky than Pinnacle Financial. It trades about 0.0 of its potential returns per unit of risk. Pinnacle Financial Partners is currently generating about -0.03 per unit of risk. If you would invest  2,859  in Home BancShares on December 25, 2024 and sell it today you would lose (12.00) from holding Home BancShares or give up 0.42% of portfolio value over 90 days.

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

Home BancShares  vs.  Pinnacle Financial Partners

Home BancShares

Risk-Adjusted Performance

Very Weak

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

Pinnacle Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pinnacle Financial Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Pinnacle Financial is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Home BancShares and Pinnacle Financial

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

The idea behind Home BancShares and Pinnacle Financial Partners 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.