Correlation Between Sierra Bancorp and Heritage Commerce

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

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

Diversification Opportunities for Sierra Bancorp and Heritage Commerce

0.31

Correlation Coefficient

Sierra Bancorp  Heritage Commerce

Weak diversification

The 3 months correlation between Sierra and Heritage is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Sierra Bancorp 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 Sierra 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 Sierra Bancorp 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 Sierra Bancorp i.e., Sierra Bancorp and Heritage Commerce go up and down completely randomly.

Pair Corralation between Sierra Bancorp and Heritage Commerce

Given the investment horizon of 90 days Sierra Bancorp is expected to generate 1.62 times more return on investment than Heritage Commerce. However, Sierra Bancorp is 1.62 times more volatile than Heritage Commerce Corp. It trades about 0.2 of its potential returns per unit of risk. Heritage Commerce Corp is currently generating about 0.02 per unit of risk. If you would invest  1,905  in Sierra Bancorp on February 8, 2024 and sell it today you would earn a total of  227.00  from holding Sierra Bancorp or generate 11.92% return on investment over 90 days.

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

Sierra Bancorp  vs.  Heritage Commerce Corp

Sierra Bancorp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sierra Bancorp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Sierra Bancorp reported solid returns over the last few months and may actually be approaching a breakup point.

Heritage Commerce Corp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Heritage Commerce Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, Heritage Commerce is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Sierra Bancorp and Heritage Commerce

The main advantage of trading using opposite Sierra Bancorp and Heritage Commerce positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sierra Bancorp 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 Sierra Bancorp 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.