Can any of the company-specific risk be diversified away by investing in both Cullman Bancorp and Home Bancorp 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 Cullman Bancorp and Home Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cullman Bancorp and Home Bancorp, you can compare the effects of market volatilities on Cullman Bancorp and Home Bancorp 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 Cullman Bancorp with a short position of Home Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cullman Bancorp and Home Bancorp.
Diversification Opportunities for Cullman Bancorp and Home Bancorp
The 3 months correlation between Cullman and Home is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Cullman Bancorp and Home Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Bancorp and Cullman 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 Cullman Bancorp are associated (or correlated) with Home Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Bancorp has no effect on the direction of Cullman Bancorp i.e., Cullman Bancorp and Home Bancorp go up and down completely randomly.
Pair Corralation between Cullman Bancorp and Home Bancorp
Given the investment horizon of 90 days Cullman Bancorp is expected to under-perform the Home Bancorp. But the stock apears to be less risky and, when comparing its historical volatility, Cullman Bancorp is 1.52 times less risky than Home Bancorp. The stock trades about -0.03 of its potential returns per unit of risk. The Home Bancorp is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 3,552 in Home Bancorp on March 6, 2024 and sell it today you would earn a total of 38.00 from holding Home Bancorp or generate 1.07% return on investment over 90 days.
Over the last 90 days Cullman Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Cullman Bancorp is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.
Compared to the overall equity markets, risk-adjusted returns on investments in Home Bancorp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental indicators, Home Bancorp is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.