Correlation Between HMN Financial and QCR Holdings

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

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

Diversification Opportunities for HMN Financial and QCR Holdings

0.64

Correlation Coefficient

HMN Financial  QCR Holdings

Poor diversification

The 3 months correlation between HMN and QCR is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding HMN Financial and QCR Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on QCR Holdings 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 QCR Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of QCR Holdings has no effect on the direction of HMN Financial i.e., HMN Financial and QCR Holdings go up and down completely randomly.

Pair Corralation between HMN Financial and QCR Holdings

Given the investment horizon of 90 days HMN Financial is expected to generate 2.0 times less return on investment than QCR Holdings. In addition to that, HMN Financial is 1.0 times more volatile than QCR Holdings. It trades about 0.04 of its total potential returns per unit of risk. QCR Holdings is currently generating about 0.07 per unit of volatility. If you would invest  4,863  in QCR Holdings on September 1, 2024 and sell it today you would earn a total of  4,348  from holding QCR Holdings or generate 89.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	92.12%
Values	Daily Returns

HMN Financial  vs.  QCR Holdings

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 December 2024.

QCR Holdings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in QCR Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, QCR Holdings demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HMN Financial and QCR Holdings

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

The idea behind HMN Financial and QCR Holdings 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 Stocks Directory module to find actively traded stocks across global markets.