Correlation Between Heritage Commerce and Enterprise Financial

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

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

Diversification Opportunities for Heritage Commerce and Enterprise Financial

0.68

Correlation Coefficient

Heritage Commerce  Enterprise Financial

Poor diversification

The 3 months correlation between Heritage and Enterprise is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Heritage Commerce Corp and Enterprise Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enterprise Financial and Heritage Commerce 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 Commerce Corp are associated (or correlated) with Enterprise Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enterprise Financial has no effect on the direction of Heritage Commerce i.e., Heritage Commerce and Enterprise Financial go up and down completely randomly.

Pair Corralation between Heritage Commerce and Enterprise Financial

Given the investment horizon of 90 days Heritage Commerce Corp is expected to generate 0.9 times more return on investment than Enterprise Financial. However, Heritage Commerce Corp is 1.11 times less risky than Enterprise Financial. It trades about 0.04 of its potential returns per unit of risk. Enterprise Financial Services is currently generating about -0.03 per unit of risk. If you would invest  925.00  in Heritage Commerce Corp on December 30, 2024 and sell it today you would earn a total of  29.00  from holding Heritage Commerce Corp or generate 3.14% return on investment over 90 days.

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

Heritage Commerce Corp  vs.  Enterprise Financial Services

Heritage Commerce Corp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Heritage Commerce Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, Heritage Commerce is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Enterprise Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Enterprise Financial Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Enterprise Financial is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Heritage Commerce and Enterprise Financial

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

The idea behind Heritage Commerce Corp and Enterprise Financial Services 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .