Correlation Between Middlefield Banc and Home Bancorp

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

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

Diversification Opportunities for Middlefield Banc and Home Bancorp

0.75

Correlation Coefficient

Middlefield Banc  Home Bancorp

Poor diversification

The 3 months correlation between Middlefield and Home is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Middlefield Banc and Home Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Bancorp and Middlefield Banc 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 Middlefield Banc 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 Middlefield Banc i.e., Middlefield Banc and Home Bancorp go up and down completely randomly.

Pair Corralation between Middlefield Banc and Home Bancorp

Given the investment horizon of 90 days Middlefield Banc is expected to generate 1.11 times less return on investment than Home Bancorp. In addition to that, Middlefield Banc is 1.22 times more volatile than Home Bancorp. It trades about 0.03 of its total potential returns per unit of risk. Home Bancorp is currently generating about 0.04 per unit of volatility. If you would invest  3,849  in Home Bancorp on September 8, 2024 and sell it today you would earn a total of  1,165  from holding Home Bancorp or generate 30.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Middlefield Banc  vs.  Home Bancorp

Middlefield Banc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Middlefield Banc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady fundamental indicators, Middlefield Banc displayed solid returns over the last few months and may actually be approaching a breakup point.

Home Bancorp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Home Bancorp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady fundamental indicators, Home Bancorp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Middlefield Banc and Home Bancorp

The main advantage of trading using opposite Middlefield Banc and Home Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Middlefield Banc 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 Middlefield Banc 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.