Correlation Between HMN Financial and LINKBANCORP

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

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

Diversification Opportunities for HMN Financial and LINKBANCORP

0.43

Correlation Coefficient

HMN Financial  LINKBANCORP

Very weak diversification

The 3 months correlation between HMN and LINKBANCORP is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding HMN Financial and LINKBANCORP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LINKBANCORP 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 LINKBANCORP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LINKBANCORP has no effect on the direction of HMN Financial i.e., HMN Financial and LINKBANCORP go up and down completely randomly.

Pair Corralation between HMN Financial and LINKBANCORP

Given the investment horizon of 90 days HMN Financial is expected to under-perform the LINKBANCORP. But the stock apears to be less risky and, when comparing its historical volatility, HMN Financial is 1.51 times less risky than LINKBANCORP. The stock trades about -0.2 of its potential returns per unit of risk. The LINKBANCORP is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  669.00  in LINKBANCORP on February 4, 2024 and sell it today you would lose (20.00) from holding LINKBANCORP or give up 2.99% of portfolio value over 90 days.

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

HMN Financial  vs.  LINKBANCORP

HMN Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HMN Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

LINKBANCORP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LINKBANCORP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward-looking signals, LINKBANCORP is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with HMN Financial and LINKBANCORP

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

The idea behind HMN Financial and LINKBANCORP 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.