Correlation Between Live Oak and Home Bancorp

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

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

Diversification Opportunities for Live Oak and Home Bancorp

0.17

Correlation Coefficient

Live Oak  Home Bancorp

Average diversification

The 3 months correlation between Live and Home is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Live Oak Bancshares and Home Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Bancorp and Live Oak 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 Live Oak Bancshares are associated (or correlated) with Home Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Bancorp has no effect on the direction of Live Oak i.e., Live Oak and Home Bancorp go up and down completely randomly.

Pair Corralation between Live Oak and Home Bancorp

Considering the 90-day investment horizon Live Oak Bancshares is expected to under-perform the Home Bancorp. In addition to that, Live Oak is 1.13 times more volatile than Home Bancorp. It trades about -0.35 of its total potential returns per unit of risk. Home Bancorp is currently generating about -0.27 per unit of volatility. If you would invest  4,923  in Home Bancorp on October 10, 2024 and sell it today you would lose (496.00) from holding Home Bancorp or give up 10.08% of portfolio value over 90 days.

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

Live Oak Bancshares  vs.  Home Bancorp

Live Oak Bancshares

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Live Oak Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Home Bancorp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Home Bancorp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental indicators, Home Bancorp is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Live Oak and Home Bancorp

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

The idea behind Live Oak Bancshares and Home Bancorp 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.