Correlation Between Absa Group and HMN Financial

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

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

Diversification Opportunities for Absa Group and HMN Financial

0.0

Correlation Coefficient

Absa Group  HMN Financial

Pay attention - limited upside

The 3 months correlation between Absa and HMN is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Absa Group Limited and HMN Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HMN Financial and Absa Group 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 Absa Group Limited 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 Absa Group i.e., Absa Group and HMN Financial go up and down completely randomly.

Pair Corralation between Absa Group and HMN Financial

Assuming the 90 days horizon Absa Group Limited is expected to generate 3.0 times more return on investment than HMN Financial. However, Absa Group is 3.0 times more volatile than HMN Financial. It trades about 0.04 of its potential returns per unit of risk. HMN Financial is currently generating about 0.04 per unit of risk. If you would invest  383.00  in Absa Group Limited on September 20, 2024 and sell it today you would earn a total of  428.00  from holding Absa Group Limited or generate 111.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	89.49%
Values	Daily Returns

Absa Group Limited  vs.  HMN Financial

Absa Group Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Absa Group Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Absa Group 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

OK

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 reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Absa Group and HMN Financial

The main advantage of trading using opposite Absa Group and HMN Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Absa Group 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 Absa Group Limited 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.