Correlation Between Home Bancorp and HomeTrust Bancshares

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

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

Diversification Opportunities for Home Bancorp and HomeTrust Bancshares

0.87

Correlation Coefficient

Home Bancorp  HomeTrust Bancshares

Very poor diversification

The 3 months correlation between Home and HomeTrust is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Home Bancorp and HomeTrust Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HomeTrust Bancshares and Home 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 Home Bancorp are associated (or correlated) with HomeTrust Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HomeTrust Bancshares has no effect on the direction of Home Bancorp i.e., Home Bancorp and HomeTrust Bancshares go up and down completely randomly.

Pair Corralation between Home Bancorp and HomeTrust Bancshares

Given the investment horizon of 90 days Home Bancorp is expected to under-perform the HomeTrust Bancshares. In addition to that, Home Bancorp is 1.43 times more volatile than HomeTrust Bancshares. It trades about -0.02 of its total potential returns per unit of risk. HomeTrust Bancshares is currently generating about 0.06 per unit of volatility. If you would invest  2,556  in HomeTrust Bancshares on February 2, 2024 and sell it today you would earn a total of  53.00  from holding HomeTrust Bancshares or generate 2.07% return on investment over 90 days.

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

Home Bancorp  vs.  HomeTrust Bancshares

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 relatively invariable fundamental indicators, Home Bancorp is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

HomeTrust Bancshares

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HomeTrust Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, HomeTrust Bancshares is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Home Bancorp and HomeTrust Bancshares

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

The idea behind Home Bancorp and HomeTrust Bancshares 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.