Correlation Between National Bank and Heritage Financial

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

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

Diversification Opportunities for National Bank and Heritage Financial

0.73

Correlation Coefficient

National Bank  Heritage Financial

Poor diversification

The 3 months correlation between National and Heritage is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding National Bank Holdings and Heritage Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heritage Financial and National 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 National Bank Holdings 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 National Bank i.e., National Bank and Heritage Financial go up and down completely randomly.

Pair Corralation between National Bank and Heritage Financial

Given the investment horizon of 90 days National Bank is expected to generate 1.09 times less return on investment than Heritage Financial. But when comparing it to its historical volatility, National Bank Holdings is 1.05 times less risky than Heritage Financial. It trades about 0.15 of its potential returns per unit of risk. Heritage Financial is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  2,100  in Heritage Financial on August 13, 2024 and sell it today you would earn a total of  592.00  from holding Heritage Financial or generate 28.19% return on investment over 90 days.

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

National Bank Holdings  vs.  Heritage Financial

National Bank Holdings

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in National Bank Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical indicators, National Bank exhibited solid returns over the last few months and may actually be approaching a breakup point.

Heritage Financial

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Heritage Financial are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Heritage Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Bank and Heritage Financial

The main advantage of trading using opposite National Bank and Heritage Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Bank 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 National Bank Holdings 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.