Correlation Between HomeTrust Bancshares and Middlefield Banc

Can any of the company-specific risk be diversified away by investing in both HomeTrust Bancshares and Middlefield Banc 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 HomeTrust Bancshares and Middlefield Banc into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for HomeTrust Bancshares and Middlefield Banc

0.66

Correlation Coefficient

HomeTrust Bancshares  Middlefield Banc

Poor diversification

The 3 months correlation between HomeTrust and Middlefield is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding HomeTrust Bancshares and Middlefield Banc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Middlefield Banc and HomeTrust 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 HomeTrust Bancshares are associated (or correlated) with Middlefield Banc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Middlefield Banc has no effect on the direction of HomeTrust Bancshares i.e., HomeTrust Bancshares and Middlefield Banc go up and down completely randomly.

Pair Corralation between HomeTrust Bancshares and Middlefield Banc

Given the investment horizon of 90 days HomeTrust Bancshares is expected to generate 2.39 times less return on investment than Middlefield Banc. But when comparing it to its historical volatility, HomeTrust Bancshares is 1.24 times less risky than Middlefield Banc. It trades about 0.06 of its potential returns per unit of risk. Middlefield Banc is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,570  in Middlefield Banc on September 9, 2024 and sell it today you would earn a total of  530.00  from holding Middlefield Banc or generate 20.62% return on investment over 90 days.

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

HomeTrust Bancshares  vs.  Middlefield Banc

HomeTrust Bancshares

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HomeTrust Bancshares are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile fundamental drivers, HomeTrust Bancshares may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Middlefield Banc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Middlefield Banc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile fundamental indicators, Middlefield Banc displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HomeTrust Bancshares and Middlefield Banc

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

The idea behind HomeTrust Bancshares and Middlefield Banc 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.