Correlation Between Business First and HMN Financial

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

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

Diversification Opportunities for Business First and HMN Financial

0.0

Correlation Coefficient

Business First  HMN Financial

Pay attention - limited upside

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

Pair Corralation between Business First and HMN Financial

If you would invest  2,560  in Business First Bancshares on December 28, 2024 and sell it today you would lose (23.00) from holding Business First Bancshares or give up 0.9% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Business First Bancshares  vs.  HMN Financial

Business First Bancshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Business First Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Business First is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

HMN Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days HMN Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, HMN Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Business First and HMN Financial

The main advantage of trading using opposite Business First and HMN Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Business First 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 Business First Bancshares 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.