Correlation Between Home Federal and ESSA Bancorp

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

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

Diversification Opportunities for Home Federal and ESSA Bancorp

0.7

Correlation Coefficient

Home Federal  ESSA Bancorp

Poor diversification

The 3 months correlation between Home and ESSA is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Home Federal Bancorp and ESSA Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESSA Bancorp and Home 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 Home Federal Bancorp are associated (or correlated) with ESSA Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESSA Bancorp has no effect on the direction of Home Federal i.e., Home Federal and ESSA Bancorp go up and down completely randomly.

Pair Corralation between Home Federal and ESSA Bancorp

Given the investment horizon of 90 days Home Federal Bancorp is expected to under-perform the ESSA Bancorp. But the stock apears to be less risky and, when comparing its historical volatility, Home Federal Bancorp is 1.73 times less risky than ESSA Bancorp. The stock trades about -0.23 of its potential returns per unit of risk. The ESSA Bancorp is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,723  in ESSA Bancorp on February 5, 2024 and sell it today you would lose (3.00) from holding ESSA Bancorp or give up 0.17% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	90.91%
Values	Daily Returns

Home Federal Bancorp  vs.  ESSA Bancorp

Home Federal Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Home Federal Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental drivers remain quite persistent which may send shares a bit higher in June 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

ESSA Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ESSA Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ESSA Bancorp is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Home Federal and ESSA Bancorp

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

The idea behind Home Federal Bancorp and ESSA Bancorp 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.