Correlation Between QCR Holdings and Heritage Financial

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

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

Diversification Opportunities for QCR Holdings and Heritage Financial

0.33

Correlation Coefficient

QCR Holdings  Heritage Financial

Weak diversification

The 3 months correlation between QCR and Heritage is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding QCR Holdings and Heritage Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heritage Financial and QCR Holdings 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 QCR Holdings are associated (or correlated) with Heritage Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heritage Financial has no effect on the direction of QCR Holdings i.e., QCR Holdings and Heritage Financial go up and down completely randomly.

Pair Corralation between QCR Holdings and Heritage Financial

Given the investment horizon of 90 days QCR Holdings is expected to under-perform the Heritage Financial. But the stock apears to be less risky and, when comparing its historical volatility, QCR Holdings is 1.31 times less risky than Heritage Financial. The stock trades about -0.24 of its potential returns per unit of risk. The Heritage Financial is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  2,603  in Heritage Financial on December 1, 2024 and sell it today you would lose (76.00) from holding Heritage Financial or give up 2.92% of portfolio value over 90 days.

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

QCR Holdings  vs.  Heritage Financial

QCR Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days QCR Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Heritage Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Heritage Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Heritage Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with QCR Holdings and Heritage Financial

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

The idea behind QCR Holdings and Heritage Financial 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.