Correlation Between First Merchants and National Bank
Can any of the company-specific risk be diversified away by investing in both First Merchants and National 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 First Merchants and National Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Merchants and National Bank Holdings, you can compare the effects of market volatilities on First Merchants and National 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 First Merchants with a short position of National Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Merchants and National Bank.
Diversification Opportunities for First Merchants and National Bank
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between First and National is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding First Merchants and National Bank Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Bank Holdings 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 National Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Bank Holdings has no effect on the direction of First Merchants i.e., First Merchants and National Bank go up and down completely randomly.
Pair Corralation between First Merchants and National Bank
Given the investment horizon of 90 days First Merchants is expected to generate 1.2 times less return on investment than National Bank. In addition to that, First Merchants is 1.04 times more volatile than National Bank Holdings. It trades about 0.05 of its total potential returns per unit of risk. National Bank Holdings is currently generating about 0.06 per unit of volatility. If you would invest 3,674 in National Bank Holdings on September 14, 2024 and sell it today you would earn a total of 951.00 from holding National Bank Holdings or generate 25.88% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Strong |
Accuracy | 99.6% |
Values | Daily Returns |
First Merchants vs. National Bank Holdings
Performance |
Timeline |
First Merchants |
National Bank Holdings |
First Merchants and National Bank Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with First Merchants and National Bank
The main advantage of trading using opposite First Merchants and National Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Merchants position performs unexpectedly, National 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 National Bank will offset losses from the drop in National Bank's long position.First Merchants vs. Home Bancorp | First Merchants vs. HomeTrust Bancshares | First Merchants vs. Great Southern Bancorp | First Merchants vs. Finward Bancorp |
National Bank vs. First Community | National Bank vs. Community West Bancshares | National Bank vs. First Financial Northwest | National Bank vs. First Northwest Bancorp |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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