Correlation Between Heartland Financial and OceanFirst Financial

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

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

Diversification Opportunities for Heartland Financial and OceanFirst Financial

0.8

Correlation Coefficient

Heartland Financial  OceanFirst Financial

Very poor diversification

The 3 months correlation between Heartland and OceanFirst is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Heartland Financial USA and OceanFirst Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OceanFirst Financial Corp and Heartland Financial 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 Heartland Financial USA are associated (or correlated) with OceanFirst Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OceanFirst Financial Corp has no effect on the direction of Heartland Financial i.e., Heartland Financial and OceanFirst Financial go up and down completely randomly.

Pair Corralation between Heartland Financial and OceanFirst Financial

Assuming the 90 days horizon Heartland Financial is expected to generate 3.08 times less return on investment than OceanFirst Financial. In addition to that, Heartland Financial is 2.54 times more volatile than OceanFirst Financial Corp. It trades about 0.02 of its total potential returns per unit of risk. OceanFirst Financial Corp is currently generating about 0.14 per unit of volatility. If you would invest  2,482  in OceanFirst Financial Corp on December 29, 2024 and sell it today you would earn a total of  48.00  from holding OceanFirst Financial Corp or generate 1.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	37.7%
Values	Daily Returns

Heartland Financial USA  vs.  OceanFirst Financial Corp

Heartland Financial USA

Risk-Adjusted Performance

Weak

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

OceanFirst Financial Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in OceanFirst Financial Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental indicators, OceanFirst Financial is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Heartland Financial and OceanFirst Financial

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

The idea behind Heartland Financial USA and OceanFirst Financial Corp 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.