Correlation Between First Merchants and Medical Marijuana

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

By analyzing existing cross correlation between First Merchants and Medical Marijuana I, you can compare the effects of market volatilities on First Merchants and Medical Marijuana 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 Medical Marijuana. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Merchants and Medical Marijuana.

Diversification Opportunities for First Merchants and Medical Marijuana

-0.75

Correlation Coefficient

First Merchants  Medical Marijuana

Pay attention - limited upside

The 3 months correlation between First and Medical is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding First Merchants and Medical Marijuana I in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medical Marijuana 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 Medical Marijuana. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medical Marijuana has no effect on the direction of First Merchants i.e., First Merchants and Medical Marijuana go up and down completely randomly.

Pair Corralation between First Merchants and Medical Marijuana

Given the investment horizon of 90 days First Merchants is expected to generate 0.21 times more return on investment than Medical Marijuana. However, First Merchants is 4.81 times less risky than Medical Marijuana. It trades about 0.08 of its potential returns per unit of risk. Medical Marijuana I is currently generating about -0.06 per unit of risk. If you would invest  3,649  in First Merchants on September 26, 2024 and sell it today you would earn a total of  438.00  from holding First Merchants or generate 12.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

First Merchants  vs.  Medical Marijuana I

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 exhibited solid returns over the last few months and may actually be approaching a breakup point.

Medical Marijuana

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Medical Marijuana I has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat 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 Medical Marijuana

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

The idea behind First Merchants and Medical Marijuana I 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..