Correlation Between Eagle Bancorp and HMN Financial

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

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

Diversification Opportunities for Eagle Bancorp and HMN Financial

0.57

Correlation Coefficient

Eagle Bancorp  HMN Financial

Very weak diversification

The 3 months correlation between Eagle and HMN is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Bancorp Montana and HMN Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HMN Financial and Eagle Bancorp 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 Eagle Bancorp Montana 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 Eagle Bancorp i.e., Eagle Bancorp and HMN Financial go up and down completely randomly.

Pair Corralation between Eagle Bancorp and HMN Financial

Given the investment horizon of 90 days Eagle Bancorp is expected to generate 2.42 times less return on investment than HMN Financial. But when comparing it to its historical volatility, Eagle Bancorp Montana is 1.95 times less risky than HMN Financial. It trades about 0.2 of its potential returns per unit of risk. HMN Financial is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  2,498  in HMN Financial on September 12, 2024 and sell it today you would earn a total of  301.00  from holding HMN Financial or generate 12.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	32.81%
Values	Daily Returns

Eagle Bancorp Montana  vs.  HMN Financial

Eagle Bancorp Montana

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Eagle Bancorp Montana are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak primary indicators, Eagle Bancorp unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 Eagle Bancorp and HMN Financial

The main advantage of trading using opposite Eagle Bancorp and HMN Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eagle Bancorp 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 Eagle Bancorp Montana 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.

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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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.