Correlation Between John Marshall and HMN Financial

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

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

Diversification Opportunities for John Marshall and HMN Financial

0.38

Correlation Coefficient

John Marshall  HMN Financial

Weak diversification

The 3 months correlation between John and HMN is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding John Marshall Bancorp and HMN Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HMN Financial and John Marshall 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 John Marshall Bancorp 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 John Marshall i.e., John Marshall and HMN Financial go up and down completely randomly.

Pair Corralation between John Marshall and HMN Financial

Given the investment horizon of 90 days John Marshall is expected to generate 1.65 times less return on investment than HMN Financial. In addition to that, John Marshall is 1.19 times more volatile than HMN Financial. It trades about 0.13 of its total potential returns per unit of risk. HMN Financial is currently generating about 0.25 per unit of volatility. 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	Very Weak
Accuracy	32.81%
Values	Daily Returns

John Marshall Bancorp  vs.  HMN Financial

John Marshall Bancorp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in John Marshall Bancorp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, John Marshall sustained 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 John Marshall and HMN Financial

The main advantage of trading using opposite John Marshall and HMN Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if John Marshall 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 John Marshall Bancorp 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.