Correlation Between HMN Financial and Texas Community

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

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

Diversification Opportunities for HMN Financial and Texas Community

0.4

Correlation Coefficient

HMN Financial  Texas Community

Very weak diversification

The 3 months correlation between HMN and Texas is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding HMN Financial and Texas Community Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Texas Community Banc 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 Texas Community. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Texas Community Banc has no effect on the direction of HMN Financial i.e., HMN Financial and Texas Community go up and down completely randomly.

Pair Corralation between HMN Financial and Texas Community

Given the investment horizon of 90 days HMN Financial is expected to generate 3.94 times more return on investment than Texas Community. However, HMN Financial is 3.94 times more volatile than Texas Community Bancshares. It trades about 0.15 of its potential returns per unit of risk. Texas Community Bancshares is currently generating about 0.11 per unit of risk. If you would invest  2,651  in HMN Financial on September 18, 2024 and sell it today you would earn a total of  148.00  from holding HMN Financial or generate 5.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	26.98%
Values	Daily Returns

HMN Financial  vs.  Texas Community 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.

Texas Community Banc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Texas Community Bancshares are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental drivers, Texas Community is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with HMN Financial and Texas Community

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

The idea behind HMN Financial and Texas Community 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 Stocks Directory module to find actively traded stocks across global markets.