Correlation Between HMN Financial and Shinhan Financial

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

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

Diversification Opportunities for HMN Financial and Shinhan Financial

-0.05

Correlation Coefficient

HMN Financial  Shinhan Financial

Good diversification

The 3 months correlation between HMN and Shinhan is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding HMN Financial and Shinhan Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shinhan Financial 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 Shinhan Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shinhan Financial has no effect on the direction of HMN Financial i.e., HMN Financial and Shinhan Financial go up and down completely randomly.

Pair Corralation between HMN Financial and Shinhan Financial

Given the investment horizon of 90 days HMN Financial is expected to under-perform the Shinhan Financial. But the stock apears to be less risky and, when comparing its historical volatility, HMN Financial is 2.05 times less risky than Shinhan Financial. The stock trades about -0.18 of its potential returns per unit of risk. The Shinhan Financial Group is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,335  in Shinhan Financial Group on February 2, 2024 and sell it today you would earn a total of  37.00  from holding Shinhan Financial Group or generate 1.11% return on investment over 90 days.

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

HMN Financial  vs.  Shinhan Financial Group

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 latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Shinhan Financial

Risk-Adjusted Performance

1 of 100

Insignificant

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

Pair Trading with HMN Financial and Shinhan Financial

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

The idea behind HMN Financial and Shinhan Financial Group 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.