Correlation Between RBB Bancorp and Heritage Financial

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

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

Diversification Opportunities for RBB Bancorp and Heritage Financial

0.66

Correlation Coefficient

RBB Bancorp  Heritage Financial

Poor diversification

The 3 months correlation between RBB and Heritage is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding RBB Bancorp and Heritage Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heritage Financial and RBB Bancorp 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 RBB Bancorp 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 RBB Bancorp i.e., RBB Bancorp and Heritage Financial go up and down completely randomly.

Pair Corralation between RBB Bancorp and Heritage Financial

Considering the 90-day investment horizon RBB Bancorp is expected to under-perform the Heritage Financial. But the stock apears to be less risky and, when comparing its historical volatility, RBB Bancorp is 1.02 times less risky than Heritage Financial. The stock trades about -0.29 of its potential returns per unit of risk. The Heritage Financial is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  2,620  in Heritage Financial on November 29, 2024 and sell it today you would lose (172.00) from holding Heritage Financial or give up 6.56% of portfolio value over 90 days.

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

RBB Bancorp  vs.  Heritage Financial

RBB Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days RBB Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's fundamental drivers remain somewhat strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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 latest conflicting performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with RBB Bancorp and Heritage Financial

The main advantage of trading using opposite RBB Bancorp and Heritage Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RBB Bancorp 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 RBB Bancorp 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.