Correlation Between HMN Financial and Plumas Bancorp
Can any of the company-specific risk be diversified away by investing in both HMN Financial and Plumas Bancorp 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 HMN Financial and Plumas Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between HMN Financial and Plumas Bancorp, you can compare the effects of market volatilities on HMN Financial and Plumas Bancorp 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 HMN Financial with a short position of Plumas Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of HMN Financial and Plumas Bancorp.
Diversification Opportunities for HMN Financial and Plumas Bancorp
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between HMN and Plumas is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding HMN Financial and Plumas Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plumas Bancorp and HMN Financial 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 HMN Financial are associated (or correlated) with Plumas Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plumas Bancorp has no effect on the direction of HMN Financial i.e., HMN Financial and Plumas Bancorp go up and down completely randomly.
Pair Corralation between HMN Financial and Plumas Bancorp
Given the investment horizon of 90 days HMN Financial is expected to generate 1.12 times less return on investment than Plumas Bancorp. But when comparing it to its historical volatility, HMN Financial is 1.06 times less risky than Plumas Bancorp. It trades about 0.12 of its potential returns per unit of risk. Plumas Bancorp is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 3,448 in Plumas Bancorp on August 29, 2024 and sell it today you would earn a total of 1,498 from holding Plumas Bancorp or generate 43.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 73.02% |
| Values | Daily Returns |
HMN Financial vs. Plumas Bancorp
Performance |
| Timeline |
| HMN Financial |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Modest
| Plumas Bancorp |
HMN Financial and Plumas Bancorp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with HMN Financial and Plumas Bancorp
The main advantage of trading using opposite HMN Financial and Plumas Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HMN Financial position performs unexpectedly, Plumas Bancorp 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 Plumas Bancorp will offset losses from the drop in Plumas Bancorp's long position.| HMN Financial vs. Magyar Bancorp | HMN Financial vs. Home Federal Bancorp | HMN Financial vs. First Financial Northwest | HMN Financial vs. First Northwest Bancorp |
| Plumas Bancorp vs. Home Federal Bancorp | Plumas Bancorp vs. First Northwest Bancorp | Plumas Bancorp vs. Lake Shore Bancorp | Plumas Bancorp vs. Community West Bancshares |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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