Correlation Between HMN Financial and TC Bancshares

Can any of the company-specific risk be diversified away by investing in both HMN Financial and TC 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 TC 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 TC Bancshares, you can compare the effects of market volatilities on HMN Financial and TC 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 TC Bancshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of HMN Financial and TC Bancshares.

Diversification Opportunities for HMN Financial and TC Bancshares

-0.37

Correlation Coefficient

HMN Financial  TC Bancshares

Very good diversification

The 3 months correlation between HMN and TCBC is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding HMN Financial and TC Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TC 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 TC Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TC Bancshares has no effect on the direction of HMN Financial i.e., HMN Financial and TC Bancshares go up and down completely randomly.

Pair Corralation between HMN Financial and TC Bancshares

Given the investment horizon of 90 days HMN Financial is expected to generate 1.27 times more return on investment than TC Bancshares. However, HMN Financial is 1.27 times more volatile than TC Bancshares. It trades about 0.04 of its potential returns per unit of risk. TC Bancshares is currently generating about -0.01 per unit of risk. If you would invest  2,076  in HMN Financial on September 18, 2024 and sell it today you would earn a total of  723.00  from holding HMN Financial or generate 34.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.56%
Values	Daily Returns

HMN Financial  vs.  TC Bancshares

HMN Financial

Risk-Adjusted Performance

0 of 100

Good

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 reported solid returns over the last few months and may actually be approaching a breakup point.

TC Bancshares

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TC Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, TC Bancshares is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with HMN Financial and TC Bancshares

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

The idea behind HMN Financial and TC 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.