Correlation Between CNB and HMN Financial

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

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

Diversification Opportunities for CNB and HMN Financial

-0.45

Correlation Coefficient

CNB  HMN Financial

Very good diversification

The 3 months correlation between CNB and HMN is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding CNB Corp. and HMN Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HMN Financial and CNB 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 CNB Corporation 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 CNB i.e., CNB and HMN Financial go up and down completely randomly.

Pair Corralation between CNB and HMN Financial

Given the investment horizon of 90 days CNB Corporation is expected to generate 1.79 times more return on investment than HMN Financial. However, CNB is 1.79 times more volatile than HMN Financial. It trades about 0.03 of its potential returns per unit of risk. HMN Financial is currently generating about 0.04 per unit of risk. If you would invest  1,654  in CNB Corporation on October 4, 2024 and sell it today you would earn a total of  146.00  from holding CNB Corporation or generate 8.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	89.4%
Values	Daily Returns

CNB Corp.  vs.  HMN Financial

CNB Corporation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CNB Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental drivers, CNB is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with CNB and HMN Financial

The main advantage of trading using opposite CNB and HMN Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CNB 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 CNB Corporation 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.