Correlation Between Great Southern and Heritage Financial

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

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

Diversification Opportunities for Great Southern and Heritage Financial

0.49

Correlation Coefficient

Great Southern  Heritage Financial

Very weak diversification

The 3 months correlation between Great and Heritage is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Great Southern Bancorp and Heritage Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heritage Financial and Great Southern 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 Great Southern Bancorp are associated (or correlated) with Heritage Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heritage Financial has no effect on the direction of Great Southern i.e., Great Southern and Heritage Financial go up and down completely randomly.

Pair Corralation between Great Southern and Heritage Financial

Given the investment horizon of 90 days Great Southern Bancorp is expected to generate 0.84 times more return on investment than Heritage Financial. However, Great Southern Bancorp is 1.2 times less risky than Heritage Financial. It trades about 0.07 of its potential returns per unit of risk. Heritage Financial is currently generating about 0.03 per unit of risk. If you would invest  5,080  in Great Southern Bancorp on February 2, 2024 and sell it today you would earn a total of  225.00  from holding Great Southern Bancorp or generate 4.43% return on investment over 90 days.

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

Great Southern Bancorp  vs.  Heritage Financial

Great Southern Bancorp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Great Southern Bancorp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental drivers, Great Southern is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Heritage Financial

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Great Southern and Heritage Financial

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

The idea behind Great Southern Bancorp and Heritage Financial 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.