Correlation Between Live Oak and Home Federal

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

Diversification Opportunities for Live Oak and Home Federal

-0.51

Correlation Coefficient

Live Oak  Home Federal

Excellent diversification

The 3 months correlation between Live and Home is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Live Oak Bancshares and Home Federal Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Federal 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 Federal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Federal Bancorp has no effect on the direction of Live Oak i.e., Live Oak and Home Federal go up and down completely randomly.

Pair Corralation between Live Oak and Home Federal

Considering the 90-day investment horizon Live Oak is expected to generate 104.82 times less return on investment than Home Federal. But when comparing it to its historical volatility, Live Oak Bancshares is 25.01 times less risky than Home Federal. It trades about 0.02 of its potential returns per unit of risk. Home Federal Bancorp is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,197  in Home Federal Bancorp on October 25, 2024 and sell it today you would earn a total of  85.00  from holding Home Federal Bancorp or generate 7.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	91.67%
Values	Daily Returns

Live Oak Bancshares  vs.  Home Federal Bancorp

Live Oak Bancshares

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Live Oak Bancshares are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Live Oak is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Home Federal Bancorp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Home Federal Bancorp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, Home Federal is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Live Oak and Home Federal

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

The idea behind Live Oak Bancshares and Home Federal 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.