Correlation Between Security Federal and Harbor Bankshares

Can any of the company-specific risk be diversified away by investing in both Security Federal and Harbor Bankshares 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 Security Federal and Harbor Bankshares into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Security Federal and Harbor Bankshares

0.88

Correlation Coefficient

Security Federal  Harbor Bankshares

Very poor diversification

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

Pair Corralation between Security Federal and Harbor Bankshares

Given the investment horizon of 90 days Security Federal is expected to generate 1.56 times less return on investment than Harbor Bankshares. But when comparing it to its historical volatility, Security Federal is 2.21 times less risky than Harbor Bankshares. It trades about 0.15 of its potential returns per unit of risk. Harbor Bankshares is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,400  in Harbor Bankshares on November 28, 2024 and sell it today you would earn a total of  350.00  from holding Harbor Bankshares or generate 25.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	63.79%
Values	Daily Returns

Security Federal  vs.  Harbor Bankshares

Security Federal

Risk-Adjusted Performance

Good

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

Harbor Bankshares

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Harbor Bankshares are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental drivers, Harbor Bankshares disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Security Federal and Harbor Bankshares

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

The idea behind Security Federal and Harbor Bankshares 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.