Correlation Between East West and HMN Financial

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

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

Diversification Opportunities for East West and HMN Financial

-0.21

Correlation Coefficient

East West  HMN Financial

Very good diversification

The 3 months correlation between East and HMN is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding East West Bancorp and HMN Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HMN Financial and East West 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 East West 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 East West i.e., East West and HMN Financial go up and down completely randomly.

Pair Corralation between East West and HMN Financial

Given the investment horizon of 90 days East West Bancorp is expected to generate 1.67 times more return on investment than HMN Financial. However, East West is 1.67 times more volatile than HMN Financial. It trades about 0.02 of its potential returns per unit of risk. HMN Financial is currently generating about -0.01 per unit of risk. If you would invest  6,720  in East West Bancorp on February 3, 2024 and sell it today you would earn a total of  944.00  from holding East West Bancorp or generate 14.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.6%
Values	Daily Returns

East West Bancorp  vs.  HMN Financial

East West Bancorp

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in East West Bancorp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental drivers, East West may actually be approaching a critical reversion point that can send shares even higher in June 2024.

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 East West and HMN Financial

The main advantage of trading using opposite East West and HMN Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if East West 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 East West 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.