Correlation Between Enterprise Bancorp and Home Federal

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

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

Diversification Opportunities for Enterprise Bancorp and Home Federal

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Correlation Coefficient

Enterprise Bancorp  Home Federal

Pay attention - limited upside

The 3 months correlation between Enterprise and Home is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Enterprise Bancorp and Home Federal Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Federal Bancorp and Enterprise 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 Enterprise Bancorp are associated (or correlated) with Home Federal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Federal Bancorp has no effect on the direction of Enterprise Bancorp i.e., Enterprise Bancorp and Home Federal go up and down completely randomly.

Pair Corralation between Enterprise Bancorp and Home Federal

Given the investment horizon of 90 days Enterprise Bancorp is expected to under-perform the Home Federal. But the stock apears to be less risky and, when comparing its historical volatility, Enterprise Bancorp is 1.59 times less risky than Home Federal. The stock trades about -0.11 of its potential returns per unit of risk. The Home Federal Bancorp is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,140  in Home Federal Bancorp on March 12, 2024 and sell it today you would earn a total of  13.00  from holding Home Federal Bancorp or generate 1.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Enterprise Bancorp  vs.  Home Federal Bancorp

Enterprise Bancorp

Risk-Adjusted Performance

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Very Weak

Over the last 90 days Enterprise Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Enterprise Bancorp is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

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 latest weak performance, the Stock's fundamental drivers remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Enterprise Bancorp and Home Federal

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

The idea behind Enterprise Bancorp and Home Federal 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.