Correlation Between Independent Bank and Home Bancorp

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

Diversification Opportunities for Independent Bank and Home Bancorp

0.84

Correlation Coefficient

Independent Bank  Home Bancorp

Very poor diversification

The 3 months correlation between Independent and Home is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Independent Bank Group and Home Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Bancorp 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 Home Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Bancorp has no effect on the direction of Independent Bank i.e., Independent Bank and Home Bancorp go up and down completely randomly.

Pair Corralation between Independent Bank and Home Bancorp

Given the investment horizon of 90 days Independent Bank Group is expected to under-perform the Home Bancorp. In addition to that, Independent Bank is 1.2 times more volatile than Home Bancorp. It trades about -0.03 of its total potential returns per unit of risk. Home Bancorp is currently generating about 0.02 per unit of volatility. If you would invest  3,311  in Home Bancorp on January 30, 2024 and sell it today you would earn a total of  247.00  from holding Home Bancorp or generate 7.46% return on investment over 90 days.

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

Independent Bank Group  vs.  Home Bancorp

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 weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Home Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Home Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with conflicting performance in the last few months, the Stock's fundamental indicators remain relatively invariable which may send shares a bit higher in May 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Independent Bank and Home Bancorp

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

The idea behind Independent Bank Group and Home 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.