Correlation Between Prime Meridian and Heartland Banccorp

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

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

Diversification Opportunities for Prime Meridian and Heartland Banccorp

0.86

Correlation Coefficient

Prime Meridian  Heartland Banccorp

Very poor diversification

The 3 months correlation between Prime and Heartland is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Prime Meridian Holding and Heartland Banccorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heartland Banccorp and Prime Meridian 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 Prime Meridian Holding are associated (or correlated) with Heartland Banccorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heartland Banccorp has no effect on the direction of Prime Meridian i.e., Prime Meridian and Heartland Banccorp go up and down completely randomly.

Pair Corralation between Prime Meridian and Heartland Banccorp

Given the investment horizon of 90 days Prime Meridian Holding is expected to generate 0.79 times more return on investment than Heartland Banccorp. However, Prime Meridian Holding is 1.26 times less risky than Heartland Banccorp. It trades about 0.19 of its potential returns per unit of risk. Heartland Banccorp is currently generating about 0.12 per unit of risk. If you would invest  2,400  in Prime Meridian Holding on September 3, 2024 and sell it today you would earn a total of  500.00  from holding Prime Meridian Holding or generate 20.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Prime Meridian Holding  vs.  Heartland Banccorp

Prime Meridian Holding

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prime Meridian Holding are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical indicators, Prime Meridian reported solid returns over the last few months and may actually be approaching a breakup point.

Heartland Banccorp

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Prime Meridian and Heartland Banccorp

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

The idea behind Prime Meridian Holding and Heartland Banccorp 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.