Correlation Between HMN Financial and Foreign Trade

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

By analyzing existing cross correlation between HMN Financial and Foreign Trade Bank, you can compare the effects of market volatilities on HMN Financial and Foreign Trade 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 Foreign Trade. Check out your portfolio center. Please also check ongoing floating volatility patterns of HMN Financial and Foreign Trade.

Diversification Opportunities for HMN Financial and Foreign Trade

0.59

Correlation Coefficient

HMN Financial  Foreign Trade

Very weak diversification

The 3 months correlation between HMN and Foreign is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding HMN Financial and Foreign Trade Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foreign Trade Bank 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 Foreign Trade. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foreign Trade Bank has no effect on the direction of HMN Financial i.e., HMN Financial and Foreign Trade go up and down completely randomly.

Pair Corralation between HMN Financial and Foreign Trade

Given the investment horizon of 90 days HMN Financial is expected to generate 1.58 times more return on investment than Foreign Trade. However, HMN Financial is 1.58 times more volatile than Foreign Trade Bank. It trades about 0.18 of its potential returns per unit of risk. Foreign Trade Bank is currently generating about 0.13 per unit of risk. If you would invest  2,650  in HMN Financial on September 22, 2024 and sell it today you would earn a total of  149.00  from holding HMN Financial or generate 5.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	21.88%
Values	Daily Returns

HMN Financial  vs.  Foreign Trade Bank

HMN Financial

Risk-Adjusted Performance

0 of 100

Good

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.

Foreign Trade Bank

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Foreign Trade Bank are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady essential indicators, Foreign Trade may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with HMN Financial and Foreign Trade

The main advantage of trading using opposite HMN Financial and Foreign Trade positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HMN Financial position performs unexpectedly, Foreign Trade 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 Foreign Trade will offset losses from the drop in Foreign Trade's long position.

The idea behind HMN Financial and Foreign Trade Bank 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.