Correlation Between AIB Group and HMN Financial

Can any of the company-specific risk be diversified away by investing in both AIB 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 AIB 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 AIB Group PLC and HMN Financial, you can compare the effects of market volatilities on AIB 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 AIB Group with a short position of HMN Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of AIB Group and HMN Financial.

Diversification Opportunities for AIB Group and HMN Financial

0.1

Correlation Coefficient

AIB Group  HMN Financial

Average diversification

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

Pair Corralation between AIB Group and HMN Financial

If you would invest  2,694  in HMN Financial on September 20, 2024 and sell it today you would earn a total of  105.00  from holding HMN Financial or generate 3.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	6.67%
Values	Daily Returns

AIB Group PLC  vs.  HMN Financial

AIB Group PLC

Risk-Adjusted Performance

0 of 100

Very Weak

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

The main advantage of trading using opposite AIB Group and HMN Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AIB 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 AIB Group PLC 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.