Correlation Between Home BancShares and Waterstone Financial

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

Diversification Opportunities for Home BancShares and Waterstone Financial

0.62

Correlation Coefficient

Home BancShares  Waterstone Financial

Poor diversification

The 3 months correlation between Home and Waterstone is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Home BancShares and Waterstone Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waterstone 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 Waterstone Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waterstone Financial has no effect on the direction of Home BancShares i.e., Home BancShares and Waterstone Financial go up and down completely randomly.

Pair Corralation between Home BancShares and Waterstone Financial

Given the investment horizon of 90 days Home BancShares is expected to generate 1.75 times less return on investment than Waterstone Financial. But when comparing it to its historical volatility, Home BancShares is 1.33 times less risky than Waterstone Financial. It trades about 0.04 of its potential returns per unit of risk. Waterstone Financial is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,332  in Waterstone Financial on December 20, 2024 and sell it today you would earn a total of  59.00  from holding Waterstone Financial or generate 4.43% return on investment over 90 days.

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

Home BancShares  vs.  Waterstone Financial

Home BancShares

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Home BancShares are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Waterstone Financial

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Waterstone Financial are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental drivers, Waterstone Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Home BancShares and Waterstone Financial

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

The idea behind Home BancShares and Waterstone 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.