Correlation Between Brookline Bancorp and HMN Financial

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

Diversification Opportunities for Brookline Bancorp and HMN Financial

0.63

Correlation Coefficient

Brookline Bancorp  HMN Financial

Poor diversification

The 3 months correlation between Brookline and HMN is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Brookline Bancorp and HMN Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HMN Financial and Brookline 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 Brookline 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 Brookline Bancorp i.e., Brookline Bancorp and HMN Financial go up and down completely randomly.

Pair Corralation between Brookline Bancorp and HMN Financial

Given the investment horizon of 90 days Brookline Bancorp is expected to under-perform the HMN Financial. In addition to that, Brookline Bancorp is 2.28 times more volatile than HMN Financial. It trades about -0.15 of its total potential returns per unit of risk. HMN Financial is currently generating about -0.2 per unit of volatility. If you would invest  2,070  in HMN Financial on February 3, 2024 and sell it today you would lose (122.00) from holding HMN Financial or give up 5.89% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Brookline Bancorp  vs.  HMN Financial

Brookline Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brookline Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in June 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

HMN Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HMN Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Brookline Bancorp and HMN Financial

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

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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.