Correlation Between HMN Financial and Orrstown Financial

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

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

Diversification Opportunities for HMN Financial and Orrstown Financial

0.38

Correlation Coefficient

HMN Financial  Orrstown Financial

Weak diversification

The 3 months correlation between HMN and Orrstown is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding HMN Financial and Orrstown Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orrstown 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 Orrstown Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orrstown Financial has no effect on the direction of HMN Financial i.e., HMN Financial and Orrstown Financial go up and down completely randomly.

Pair Corralation between HMN Financial and Orrstown Financial

Given the investment horizon of 90 days HMN Financial is expected to generate 1.01 times less return on investment than Orrstown Financial. In addition to that, HMN Financial is 1.4 times more volatile than Orrstown Financial Services. It trades about 0.05 of its total potential returns per unit of risk. Orrstown Financial Services is currently generating about 0.08 per unit of volatility. If you would invest  2,852  in Orrstown Financial Services on September 19, 2024 and sell it today you would earn a total of  929.50  from holding Orrstown Financial Services or generate 32.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	80.65%
Values	Daily Returns

HMN Financial  vs.  Orrstown Financial Services

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.

Orrstown Financial

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Orrstown Financial Services are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Orrstown Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with HMN Financial and Orrstown Financial

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

The idea behind HMN Financial and Orrstown Financial Services 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.