Correlation Between Northeast Community and Home Bancorp

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

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

Diversification Opportunities for Northeast Community and Home Bancorp

0.84

Correlation Coefficient

Northeast Community  Home Bancorp

Very poor diversification

The 3 months correlation between Northeast and Home is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Northeast Community Bancorp and Home Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Bancorp and Northeast Community 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 Northeast Community Bancorp 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 Northeast Community i.e., Northeast Community and Home Bancorp go up and down completely randomly.

Pair Corralation between Northeast Community and Home Bancorp

Given the investment horizon of 90 days Northeast Community Bancorp is expected to under-perform the Home Bancorp. In addition to that, Northeast Community is 1.34 times more volatile than Home Bancorp. It trades about -0.13 of its total potential returns per unit of risk. Home Bancorp is currently generating about 0.01 per unit of volatility. If you would invest  4,938  in Home Bancorp on September 16, 2024 and sell it today you would lose (1.00) from holding Home Bancorp or give up 0.02% of portfolio value over 90 days.

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

Northeast Community Bancorp  vs.  Home Bancorp

Northeast Community

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Northeast Community Bancorp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental indicators, Northeast Community sustained solid returns over the last few months and may actually be approaching a breakup point.

Home Bancorp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Home Bancorp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting fundamental indicators, Home Bancorp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northeast Community and Home Bancorp

The main advantage of trading using opposite Northeast Community and Home Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northeast Community 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 Northeast Community Bancorp 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.