Correlation Between HMN Financial and Capitol Federal

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

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

Diversification Opportunities for HMN Financial and Capitol Federal

0.56

Correlation Coefficient

HMN Financial  Capitol Federal

Very weak diversification

The 3 months correlation between HMN and Capitol is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding HMN Financial and Capitol Federal Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capitol Federal Financial and HMN 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 HMN Financial are associated (or correlated) with Capitol Federal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capitol Federal Financial has no effect on the direction of HMN Financial i.e., HMN Financial and Capitol Federal go up and down completely randomly.

Pair Corralation between HMN Financial and Capitol Federal

Given the investment horizon of 90 days HMN Financial is expected to generate 1.4 times less return on investment than Capitol Federal. In addition to that, HMN Financial is 1.0 times more volatile than Capitol Federal Financial. It trades about 0.08 of its total potential returns per unit of risk. Capitol Federal Financial is currently generating about 0.11 per unit of volatility. If you would invest  583.00  in Capitol Federal Financial on September 2, 2024 and sell it today you would earn a total of  85.00  from holding Capitol Federal Financial or generate 14.58% return on investment over 90 days.

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

HMN Financial  vs.  Capitol Federal Financial

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.

Capitol Federal Financial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Capitol Federal Financial are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical and fundamental indicators, Capitol Federal displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HMN Financial and Capitol Federal

The main advantage of trading using opposite HMN Financial and Capitol Federal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HMN Financial position performs unexpectedly, Capitol Federal 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 Capitol Federal will offset losses from the drop in Capitol Federal's long position.

The idea behind HMN Financial and Capitol Federal 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.