Correlation Between HMN Financial and Shore Bancshares

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

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

Diversification Opportunities for HMN Financial and Shore Bancshares

0.45

Correlation Coefficient

HMN Financial  Shore Bancshares

Very weak diversification

The 3 months correlation between HMN and Shore is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding HMN Financial and Shore Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shore Bancshares 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 Shore Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shore Bancshares has no effect on the direction of HMN Financial i.e., HMN Financial and Shore Bancshares go up and down completely randomly.

Pair Corralation between HMN Financial and Shore Bancshares

Given the investment horizon of 90 days HMN Financial is expected to generate 0.99 times more return on investment than Shore Bancshares. However, HMN Financial is 1.01 times less risky than Shore Bancshares. It trades about 0.04 of its potential returns per unit of risk. Shore Bancshares is currently generating about 0.01 per unit of risk. If you would invest  2,106  in HMN Financial on September 30, 2024 and sell it today you would earn a total of  693.00  from holding HMN Financial or generate 32.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	88.13%
Values	Daily Returns

HMN Financial  vs.  Shore Bancshares

HMN Financial

Risk-Adjusted Performance

0 of 100

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.

Shore Bancshares

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shore Bancshares are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady fundamental drivers, Shore Bancshares demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HMN Financial and Shore Bancshares

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

The idea behind HMN Financial and Shore Bancshares 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.