Correlation Between HMN Financial and Heritage Commerce

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

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

Diversification Opportunities for HMN Financial and Heritage Commerce

0.33

Correlation Coefficient

HMN Financial  Heritage Commerce

Weak diversification

The 3 months correlation between HMN and Heritage is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding HMN Financial and Heritage Commerce Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heritage Commerce Corp and HMN Financial 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 HMN Financial are associated (or correlated) with Heritage Commerce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heritage Commerce Corp has no effect on the direction of HMN Financial i.e., HMN Financial and Heritage Commerce go up and down completely randomly.

Pair Corralation between HMN Financial and Heritage Commerce

Given the investment horizon of 90 days HMN Financial is expected to generate 1.9 times more return on investment than Heritage Commerce. However, HMN Financial is 1.9 times more volatile than Heritage Commerce Corp. It trades about 0.09 of its potential returns per unit of risk. Heritage Commerce Corp is currently generating about 0.04 per unit of risk. If you would invest  1,968  in HMN Financial on February 19, 2024 and sell it today you would earn a total of  290.00  from holding HMN Financial or generate 14.74% return on investment over 90 days.

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

HMN Financial  vs.  Heritage Commerce Corp

HMN Financial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in HMN Financial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, HMN Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Heritage Commerce Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Heritage Commerce Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, Heritage Commerce is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with HMN Financial and Heritage Commerce

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

The idea behind HMN Financial and Heritage Commerce Corp 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.