Correlation Between North Dallas and HMN Financial

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Can any of the company-specific risk be diversified away by investing in both North Dallas 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 North Dallas and HMN Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between North Dallas Bank and HMN Financial, you can compare the effects of market volatilities on North Dallas 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 North Dallas with a short position of HMN Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of North Dallas and HMN Financial.

Diversification Opportunities for North Dallas and HMN Financial

0.55
  Correlation Coefficient

Very weak diversification

The 3 months correlation between North and HMN is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding North Dallas Bank and HMN Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HMN Financial and North Dallas 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 North Dallas Bank 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 North Dallas i.e., North Dallas and HMN Financial go up and down completely randomly.

Pair Corralation between North Dallas and HMN Financial

Given the investment horizon of 90 days North Dallas Bank is expected to under-perform the HMN Financial. But the pink sheet apears to be less risky and, when comparing its historical volatility, North Dallas Bank is 2.2 times less risky than HMN Financial. The pink sheet trades about -0.07 of its potential returns per unit of risk. The HMN Financial is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,947  in HMN Financial on September 12, 2024 and sell it today you would earn a total of  852.00  from holding HMN Financial or generate 43.76% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy66.99%
ValuesDaily Returns

North Dallas Bank  vs.  HMN Financial

 Performance 
       Timeline  
North Dallas Bank 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in North Dallas Bank are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental indicators, North Dallas may actually be approaching a critical reversion point that can send shares even higher in January 2025.
HMN Financial 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Solid
Over the last 90 days HMN Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly unsteady basic indicators, HMN Financial reported solid returns over the last few months and may actually be approaching a breakup point.

North Dallas and HMN Financial Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with North Dallas and HMN Financial

The main advantage of trading using opposite North Dallas and HMN Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North Dallas 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 North Dallas Bank 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.
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.

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