Correlation Between HMN Financial and Prime Meridian

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

By analyzing existing cross correlation between HMN Financial and Prime Meridian Holding, you can compare the effects of market volatilities on HMN Financial and Prime Meridian 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 Prime Meridian. Check out your portfolio center. Please also check ongoing floating volatility patterns of HMN Financial and Prime Meridian.

Diversification Opportunities for HMN Financial and Prime Meridian

0.46

Correlation Coefficient

HMN Financial  Prime Meridian

Very weak diversification

The 3 months correlation between HMN and Prime is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding HMN Financial and Prime Meridian Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prime Meridian Holding 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 Prime Meridian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prime Meridian Holding has no effect on the direction of HMN Financial i.e., HMN Financial and Prime Meridian go up and down completely randomly.

Pair Corralation between HMN Financial and Prime Meridian

Given the investment horizon of 90 days HMN Financial is expected to generate 1.32 times more return on investment than Prime Meridian. However, HMN Financial is 1.32 times more volatile than Prime Meridian Holding. It trades about 0.11 of its potential returns per unit of risk. Prime Meridian Holding is currently generating about 0.09 per unit of risk. If you would invest  2,410  in HMN Financial on October 10, 2024 and sell it today you would earn a total of  389.00  from holding HMN Financial or generate 16.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	51.61%
Values	Daily Returns

HMN Financial  vs.  Prime Meridian Holding

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 nearly stable basic indicators, HMN Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Prime Meridian Holding

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Prime Meridian Holding are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical indicators, Prime Meridian may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with HMN Financial and Prime Meridian

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

The idea behind HMN Financial and Prime Meridian Holding 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.