Correlation Between First Busey and HMN Financial

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

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

Diversification Opportunities for First Busey and HMN Financial

0.1

Correlation Coefficient

First Busey  HMN Financial

Average diversification

The 3 months correlation between First and HMN is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding First Busey Corp and HMN Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HMN Financial and First Busey 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 First Busey 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 First Busey i.e., First Busey and HMN Financial go up and down completely randomly.

Pair Corralation between First Busey and HMN Financial

Given the investment horizon of 90 days First Busey Corp is expected to under-perform the HMN Financial. But the stock apears to be less risky and, when comparing its historical volatility, First Busey Corp is 3.6 times less risky than HMN Financial. The stock trades about -0.16 of its potential returns per unit of risk. The HMN Financial is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1,884  in HMN Financial on March 8, 2024 and sell it today you would earn a total of  354.00  from holding HMN Financial or generate 18.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

First Busey Corp  vs.  HMN Financial

First Busey Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Busey Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, First Busey is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

HMN Financial

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HMN Financial are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, HMN Financial may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Pair Trading with First Busey and HMN Financial

The main advantage of trading using opposite First Busey and HMN Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Busey 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 First Busey 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 Stocks Directory module to find actively traded stocks across global markets.