Correlation Between Eagle Bancorp and Heritage Commerce

Can any of the company-specific risk be diversified away by investing in both Eagle 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 Eagle 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 Eagle Bancorp Montana and Heritage Commerce Corp, you can compare the effects of market volatilities on Eagle 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 Eagle Bancorp with a short position of Heritage Commerce. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eagle Bancorp and Heritage Commerce.

Diversification Opportunities for Eagle Bancorp and Heritage Commerce

0.66

Correlation Coefficient

Eagle Bancorp  Heritage Commerce

Poor diversification

The 3 months correlation between Eagle and Heritage is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Bancorp Montana 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 Eagle 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 Eagle Bancorp Montana 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 Eagle Bancorp i.e., Eagle Bancorp and Heritage Commerce go up and down completely randomly.

Pair Corralation between Eagle Bancorp and Heritage Commerce

Given the investment horizon of 90 days Eagle Bancorp is expected to generate 1.74 times less return on investment than Heritage Commerce. But when comparing it to its historical volatility, Eagle Bancorp Montana is 2.17 times less risky than Heritage Commerce. It trades about 0.3 of its potential returns per unit of risk. Heritage Commerce Corp is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  780.00  in Heritage Commerce Corp on February 11, 2024 and sell it today you would earn a total of  60.00  from holding Heritage Commerce Corp or generate 7.69% return on investment over 90 days.

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

Eagle Bancorp Montana  vs.  Heritage Commerce Corp

Eagle Bancorp Montana

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eagle Bancorp Montana has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, Eagle Bancorp is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

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 Eagle Bancorp and Heritage Commerce

The main advantage of trading using opposite Eagle Bancorp and Heritage Commerce positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eagle 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 Eagle Bancorp Montana 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.