Correlation Between Independent Bank and Heritage Commerce

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

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

Diversification Opportunities for Independent Bank and Heritage Commerce

0.68

Correlation Coefficient

Independent Bank  Heritage Commerce

Poor diversification

The 3 months correlation between Independent and Heritage is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Independent Bank Group 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 Independent Bank 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 Independent Bank Group 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 Independent Bank i.e., Independent Bank and Heritage Commerce go up and down completely randomly.

Pair Corralation between Independent Bank and Heritage Commerce

Given the investment horizon of 90 days Independent Bank is expected to generate 1.22 times less return on investment than Heritage Commerce. In addition to that, Independent Bank is 1.62 times more volatile than Heritage Commerce Corp. It trades about 0.12 of its total potential returns per unit of risk. Heritage Commerce Corp is currently generating about 0.24 per unit of volatility. 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

Independent Bank Group  vs.  Heritage Commerce Corp

Independent Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Independent Bank Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Independent Bank is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the 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 latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Independent Bank and Heritage Commerce

The main advantage of trading using opposite Independent Bank and Heritage Commerce positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Independent Bank 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 Independent Bank Group 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.