Correlation Between Commerzbank and HMN Financial

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

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

Diversification Opportunities for Commerzbank and HMN Financial

-0.35

Correlation Coefficient

Commerzbank  HMN Financial

Very good diversification

The 3 months correlation between Commerzbank and HMN is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Commerzbank AG PK and HMN Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HMN Financial and Commerzbank 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 Commerzbank AG PK 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 Commerzbank i.e., Commerzbank and HMN Financial go up and down completely randomly.

Pair Corralation between Commerzbank and HMN Financial

Assuming the 90 days horizon Commerzbank AG PK is expected to generate 1.11 times more return on investment than HMN Financial. However, Commerzbank is 1.11 times more volatile than HMN Financial. It trades about 0.05 of its potential returns per unit of risk. HMN Financial is currently generating about 0.04 per unit of risk. If you would invest  958.00  in Commerzbank AG PK on September 25, 2024 and sell it today you would earn a total of  626.00  from holding Commerzbank AG PK or generate 65.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	88.73%
Values	Daily Returns

Commerzbank AG PK  vs.  HMN Financial

Commerzbank AG PK

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Commerzbank AG PK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

HMN Financial

Risk-Adjusted Performance

0 of 100

Solid

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 Commerzbank and HMN Financial

The main advantage of trading using opposite Commerzbank and HMN Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commerzbank 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 Commerzbank AG PK 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 Anywhere module to track or share privately all of your investments from the convenience of any device.