Correlation Between Heritage Commerce and HomeStreet

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

Diversification Opportunities for Heritage Commerce and HomeStreet

0.31

Correlation Coefficient

Heritage Commerce  HomeStreet

Weak diversification

The 3 months correlation between Heritage and HomeStreet is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Heritage Commerce Corp and HomeStreet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HomeStreet 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 HomeStreet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HomeStreet has no effect on the direction of Heritage Commerce i.e., Heritage Commerce and HomeStreet go up and down completely randomly.

Pair Corralation between Heritage Commerce and HomeStreet

Given the investment horizon of 90 days Heritage Commerce Corp is expected to generate 0.62 times more return on investment than HomeStreet. However, Heritage Commerce Corp is 1.61 times less risky than HomeStreet. It trades about 0.01 of its potential returns per unit of risk. HomeStreet is currently generating about -0.13 per unit of risk. If you would invest  1,048  in Heritage Commerce Corp on November 29, 2024 and sell it today you would earn a total of  3.00  from holding Heritage Commerce Corp or generate 0.29% return on investment over 90 days.

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

Heritage Commerce Corp  vs.  HomeStreet

Heritage Commerce Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Heritage Commerce Corp has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

HomeStreet

Risk-Adjusted Performance

Very Weak

Over the last 90 days HomeStreet has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in March 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Heritage Commerce and HomeStreet

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

The idea behind Heritage Commerce Corp and HomeStreet 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.