Correlation Between National Capital and Home Federal

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

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

Diversification Opportunities for National Capital and Home Federal

0.14

Correlation Coefficient

National Capital  Home Federal

Average diversification

The 3 months correlation between National and Home is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding National Capital 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 National Capital 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 National Capital 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 National Capital i.e., National Capital and Home Federal go up and down completely randomly.

Pair Corralation between National Capital and Home Federal

Given the investment horizon of 90 days National Capital Bank is expected to generate 4.46 times more return on investment than Home Federal. However, National Capital is 4.46 times more volatile than Home Federal Bancorp. It trades about 0.11 of its potential returns per unit of risk. Home Federal Bancorp is currently generating about 0.1 per unit of risk. If you would invest  6,522  in National Capital Bank on September 25, 2024 and sell it today you would earn a total of  978.00  from holding National Capital Bank or generate 15.0% return on investment over 90 days.

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

National Capital Bank  vs.  Home Federal Bancorp

National Capital Bank

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in National Capital Bank are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal fundamental indicators, National Capital sustained solid returns over the last few months and may actually be approaching a breakup point.

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 recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with National Capital and Home Federal

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

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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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.