Correlation Between Preferred Bank and Heritage Commerce

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

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

Diversification Opportunities for Preferred Bank and Heritage Commerce

0.88

Correlation Coefficient

Preferred Bank  Heritage Commerce

Very poor diversification

The 3 months correlation between Preferred and Heritage is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Preferred Bank and Heritage Commerce Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heritage Commerce Corp and Preferred 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 Preferred Bank are associated (or correlated) with Heritage Commerce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heritage Commerce Corp has no effect on the direction of Preferred Bank i.e., Preferred Bank and Heritage Commerce go up and down completely randomly.

Pair Corralation between Preferred Bank and Heritage Commerce

Given the investment horizon of 90 days Preferred Bank is expected to generate 0.96 times more return on investment than Heritage Commerce. However, Preferred Bank is 1.04 times less risky than Heritage Commerce. It trades about 0.12 of its potential returns per unit of risk. Heritage Commerce Corp is currently generating about 0.05 per unit of risk. If you would invest  8,091  in Preferred Bank on September 3, 2024 and sell it today you would earn a total of  1,342  from holding Preferred Bank or generate 16.59% return on investment over 90 days.

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

Preferred Bank  vs.  Heritage Commerce Corp

Preferred Bank

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Preferred Bank are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent fundamental drivers, Preferred Bank exhibited solid returns over the last few months and may actually be approaching a breakup point.

Heritage Commerce Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Heritage Commerce Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating fundamental drivers, Heritage Commerce may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Preferred Bank and Heritage Commerce

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

The idea behind Preferred Bank and Heritage Commerce Corp 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.