Correlation Between Home Federal and ChoiceOne Financial

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

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

Diversification Opportunities for Home Federal and ChoiceOne Financial

0.01

Correlation Coefficient

Home Federal  ChoiceOne Financial

Significant diversification

The 3 months correlation between Home and ChoiceOne is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Home Federal Bancorp and ChoiceOne Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ChoiceOne Financial and Home Federal 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 Federal Bancorp are associated (or correlated) with ChoiceOne Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ChoiceOne Financial has no effect on the direction of Home Federal i.e., Home Federal and ChoiceOne Financial go up and down completely randomly.

Pair Corralation between Home Federal and ChoiceOne Financial

Given the investment horizon of 90 days Home Federal Bancorp is expected to generate 32.8 times more return on investment than ChoiceOne Financial. However, Home Federal is 32.8 times more volatile than ChoiceOne Financial Services. It trades about 0.12 of its potential returns per unit of risk. ChoiceOne Financial Services is currently generating about 0.07 per unit of risk. If you would invest  1,135  in Home Federal Bancorp on June 27, 2024 and sell it today you would earn a total of  125.00  from holding Home Federal Bancorp or generate 11.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	88.71%
Values	Daily Returns

Home Federal Bancorp  vs.  ChoiceOne Financial Services

Home Federal Bancorp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Home Federal Bancorp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile fundamental drivers, Home Federal disclosed solid returns over the last few months and may actually be approaching a breakup point.

ChoiceOne Financial

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ChoiceOne Financial Services are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, ChoiceOne Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Home Federal and ChoiceOne Financial

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

The idea behind Home Federal Bancorp and ChoiceOne Financial Services 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.