Correlation Between Esquire Financial and HMN Financial

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

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

Diversification Opportunities for Esquire Financial and HMN Financial

0.63

Correlation Coefficient

Esquire Financial  HMN Financial

Poor diversification

The 3 months correlation between Esquire and HMN is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Esquire Financial Holdings and HMN Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HMN Financial and Esquire Financial 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 Esquire Financial Holdings 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 Esquire Financial i.e., Esquire Financial and HMN Financial go up and down completely randomly.

Pair Corralation between Esquire Financial and HMN Financial

Considering the 90-day investment horizon Esquire Financial Holdings is expected to generate 0.92 times more return on investment than HMN Financial. However, Esquire Financial Holdings is 1.09 times less risky than HMN Financial. It trades about 0.21 of its potential returns per unit of risk. HMN Financial is currently generating about 0.08 per unit of risk. If you would invest  6,002  in Esquire Financial Holdings on September 3, 2024 and sell it today you would earn a total of  1,767  from holding Esquire Financial Holdings or generate 29.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	43.75%
Values	Daily Returns

Esquire Financial Holdings  vs.  HMN Financial

Esquire Financial

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Esquire Financial Holdings are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Esquire Financial reported solid returns over the last few months and may actually be approaching a breakup point.

HMN Financial

Risk-Adjusted Performance

0 of 100

Modest

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 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Esquire Financial and HMN Financial

The main advantage of trading using opposite Esquire Financial and HMN Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Esquire Financial 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 Esquire Financial Holdings 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.