Correlation Between Heritage Financial and Independent Bank

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

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

Diversification Opportunities for Heritage Financial and Independent Bank

0.66

Correlation Coefficient

Heritage Financial  Independent Bank

Poor diversification

The 3 months correlation between Heritage and Independent is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Heritage Financial and Independent Bank Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Independent Bank and Heritage Financial 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 Heritage Financial are associated (or correlated) with Independent Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Independent Bank has no effect on the direction of Heritage Financial i.e., Heritage Financial and Independent Bank go up and down completely randomly.

Pair Corralation between Heritage Financial and Independent Bank

Given the investment horizon of 90 days Heritage Financial is expected to generate 2.09 times less return on investment than Independent Bank. But when comparing it to its historical volatility, Heritage Financial is 1.4 times less risky than Independent Bank. It trades about 0.04 of its potential returns per unit of risk. Independent Bank Group is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  4,368  in Independent Bank Group on February 22, 2024 and sell it today you would earn a total of  299.00  from holding Independent Bank Group or generate 6.85% return on investment over 90 days.

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

Heritage Financial  vs.  Independent Bank Group

Heritage Financial

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Heritage Financial are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Heritage Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Independent Bank

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Independent Bank Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Independent Bank may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Heritage Financial and Independent Bank

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

The idea behind Heritage Financial and Independent Bank Group 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.