Correlation Between ESSA Bancorp and Mercantile Bank

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

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

Diversification Opportunities for ESSA Bancorp and Mercantile Bank

0.78

Correlation Coefficient

ESSA Bancorp  Mercantile Bank

Poor diversification

The 3 months correlation between ESSA and Mercantile is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding ESSA Bancorp and Mercantile Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercantile Bank and ESSA 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 ESSA Bancorp are associated (or correlated) with Mercantile Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mercantile Bank has no effect on the direction of ESSA Bancorp i.e., ESSA Bancorp and Mercantile Bank go up and down completely randomly.

Pair Corralation between ESSA Bancorp and Mercantile Bank

Given the investment horizon of 90 days ESSA Bancorp is expected to generate 0.78 times more return on investment than Mercantile Bank. However, ESSA Bancorp is 1.28 times less risky than Mercantile Bank. It trades about 0.1 of its potential returns per unit of risk. Mercantile Bank is currently generating about 0.07 per unit of risk. If you would invest  1,798  in ESSA Bancorp on September 3, 2024 and sell it today you would earn a total of  269.00  from holding ESSA Bancorp or generate 14.96% return on investment over 90 days.

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

ESSA Bancorp  vs.  Mercantile Bank

ESSA Bancorp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ESSA Bancorp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, ESSA Bancorp sustained solid returns over the last few months and may actually be approaching a breakup point.

Mercantile Bank

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mercantile Bank are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Mercantile Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ESSA Bancorp and Mercantile Bank

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

The idea behind ESSA Bancorp and Mercantile Bank 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.