Correlation Between Chemung Financial and HMN Financial

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

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

Diversification Opportunities for Chemung Financial and HMN Financial

0.6

Correlation Coefficient

Chemung Financial  HMN Financial

Poor diversification

The 3 months correlation between Chemung and HMN is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Chemung Financial Corp and HMN Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HMN Financial and Chemung 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 Chemung Financial Corp 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 Chemung Financial i.e., Chemung Financial and HMN Financial go up and down completely randomly.

Pair Corralation between Chemung Financial and HMN Financial

Given the investment horizon of 90 days Chemung Financial Corp is expected to generate 0.6 times more return on investment than HMN Financial. However, Chemung Financial Corp is 1.67 times less risky than HMN Financial. It trades about 0.15 of its potential returns per unit of risk. HMN Financial is currently generating about 0.08 per unit of risk. If you would invest  4,637  in Chemung Financial Corp on September 2, 2024 and sell it today you would earn a total of  596.00  from holding Chemung Financial Corp or generate 12.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	43.75%
Values	Daily Returns

Chemung Financial Corp  vs.  HMN Financial

Chemung Financial Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chemung Financial Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent primary indicators, Chemung Financial 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

Modest

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 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Chemung Financial and HMN Financial

The main advantage of trading using opposite Chemung Financial and HMN Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chemung Financial 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 Chemung Financial Corp 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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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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.