Correlation Between Hang Seng and HMN Financial

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

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

Diversification Opportunities for Hang Seng and HMN Financial

-0.12

Correlation Coefficient

Hang Seng  HMN Financial

Good diversification

The 3 months correlation between Hang and HMN is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Hang Seng Bank and HMN Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HMN Financial and Hang Seng 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 Hang Seng Bank are associated (or correlated) with HMN Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HMN Financial has no effect on the direction of Hang Seng i.e., Hang Seng and HMN Financial go up and down completely randomly.

Pair Corralation between Hang Seng and HMN Financial

Assuming the 90 days horizon Hang Seng Bank is expected to under-perform the HMN Financial. But the pink sheet apears to be less risky and, when comparing its historical volatility, Hang Seng Bank is 1.36 times less risky than HMN Financial. The pink sheet trades about -0.01 of its potential returns per unit of risk. The HMN Financial is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,142  in HMN Financial on October 3, 2024 and sell it today you would earn a total of  657.00  from holding HMN Financial or generate 30.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	87.34%
Values	Daily Returns

Hang Seng Bank  vs.  HMN Financial

Hang Seng Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hang Seng Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Hang Seng is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

HMN Financial

Risk-Adjusted Performance

0 of 100

Solid

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.

Pair Trading with Hang Seng and HMN Financial

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

The idea behind Hang Seng Bank and HMN Financial 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.