Correlation Between First Merchants and Lancer Orthodontics

Can any of the company-specific risk be diversified away by investing in both First Merchants and Lancer Orthodontics 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 First Merchants and Lancer Orthodontics into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for First Merchants and Lancer Orthodontics

-0.43

Correlation Coefficient

First Merchants  Lancer Orthodontics

Very good diversification

The 3 months correlation between First and Lancer is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding First Merchants and Lancer Orthodontics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lancer Orthodontics and First Merchants 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 First Merchants are associated (or correlated) with Lancer Orthodontics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lancer Orthodontics has no effect on the direction of First Merchants i.e., First Merchants and Lancer Orthodontics go up and down completely randomly.

Pair Corralation between First Merchants and Lancer Orthodontics

Given the investment horizon of 90 days First Merchants is expected to generate 29.64 times less return on investment than Lancer Orthodontics. But when comparing it to its historical volatility, First Merchants is 17.91 times less risky than Lancer Orthodontics. It trades about 0.03 of its potential returns per unit of risk. Lancer Orthodontics is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2.00  in Lancer Orthodontics on September 24, 2024 and sell it today you would lose (1.00) from holding Lancer Orthodontics or give up 50.0% of portfolio value over 90 days.

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

First Merchants  vs.  Lancer Orthodontics

First Merchants

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Merchants are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, First Merchants may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Lancer Orthodontics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lancer Orthodontics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with First Merchants and Lancer Orthodontics

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

The idea behind First Merchants and Lancer Orthodontics 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 Commodity Directory module to find actively traded commodities issued by global exchanges.