Correlation Between PT Bank and HMN Financial

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

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

Diversification Opportunities for PT Bank and HMN Financial

-0.36

Correlation Coefficient

PT Bank  HMN Financial

Very good diversification

The 3 months correlation between PBCRF and HMN is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding PT Bank Central and HMN Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HMN Financial and PT Bank 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 PT Bank Central 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 PT Bank i.e., PT Bank and HMN Financial go up and down completely randomly.

Pair Corralation between PT Bank and HMN Financial

Assuming the 90 days horizon PT Bank is expected to generate 2.44 times less return on investment than HMN Financial. In addition to that, PT Bank is 1.68 times more volatile than HMN Financial. It trades about 0.02 of its total potential returns per unit of risk. HMN Financial is currently generating about 0.08 per unit of volatility. If you would invest  2,686  in HMN Financial on August 30, 2024 and sell it today you would earn a total of  113.00  from holding HMN Financial or generate 4.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	46.03%
Values	Daily Returns

PT Bank Central  vs.  HMN Financial

PT Bank Central

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PT Bank Central are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, PT Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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.

Pair Trading with PT Bank and HMN Financial

The main advantage of trading using opposite PT Bank and HMN Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PT Bank 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 PT Bank Central 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.