Correlation Between Financial Institutions and HMN Financial
Can any of the company-specific risk be diversified away by investing in both Financial Institutions and HMN 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 Financial Institutions and HMN Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Financial Institutions and HMN Financial, you can compare the effects of market volatilities on Financial Institutions and HMN 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 Financial Institutions with a short position of HMN Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Institutions and HMN Financial.
Diversification Opportunities for Financial Institutions and HMN Financial
0.39 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Financial and HMN is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Financial Institutions and HMN Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HMN Financial and Financial Institutions 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 Financial Institutions are associated (or correlated) with HMN Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HMN Financial has no effect on the direction of Financial Institutions i.e., Financial Institutions and HMN Financial go up and down completely randomly.
Pair Corralation between Financial Institutions and HMN Financial
Given the investment horizon of 90 days Financial Institutions is expected to generate 1.11 times more return on investment than HMN Financial. However, Financial Institutions is 1.11 times more volatile than HMN Financial. It trades about 0.03 of its potential returns per unit of risk. HMN Financial is currently generating about 0.04 per unit of risk. If you would invest 2,154 in Financial Institutions on August 27, 2024 and sell it today you would earn a total of 636.00 from holding Financial Institutions or generate 29.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 92.74% |
| Values | Daily Returns |
Financial Institutions vs. HMN Financial
Performance |
| Timeline |
| Financial Institutions |
| HMN Financial |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Modest
Financial Institutions and HMN Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financial Institutions and HMN Financial
The main advantage of trading using opposite Financial Institutions and HMN Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Institutions position performs unexpectedly, HMN 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 HMN Financial will offset losses from the drop in HMN Financial's long position.The idea behind Financial Institutions and HMN 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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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 Transaction History module to view history of all your transactions and understand their impact on performance.
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