Correlation Between Meridian Bank and Home Federal

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

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

Diversification Opportunities for Meridian Bank and Home Federal

0.13

Correlation Coefficient

Meridian Bank  Home Federal

Average diversification

The 3 months correlation between Meridian and Home is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Meridian Bank 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 Meridian Bank 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 Meridian Bank 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 Meridian Bank i.e., Meridian Bank and Home Federal go up and down completely randomly.

Pair Corralation between Meridian Bank and Home Federal

Given the investment horizon of 90 days Meridian Bank is expected to generate 0.66 times more return on investment than Home Federal. However, Meridian Bank is 1.51 times less risky than Home Federal. It trades about 0.03 of its potential returns per unit of risk. Home Federal Bancorp is currently generating about 0.01 per unit of risk. If you would invest  1,215  in Meridian Bank on December 1, 2024 and sell it today you would earn a total of  314.00  from holding Meridian Bank or generate 25.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	86.44%
Values	Daily Returns

Meridian Bank  vs.  Home Federal Bancorp

Meridian Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Meridian Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's fundamental drivers remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Home Federal Bancorp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Home Federal Bancorp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile fundamental drivers, Home Federal may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Meridian Bank and Home Federal

The main advantage of trading using opposite Meridian Bank and Home Federal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Meridian Bank 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 Meridian Bank 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.

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 Anywhere module to track or share privately all of your investments from the convenience of any device.