Correlation Between First Merchants and OFG Bancorp

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

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

Diversification Opportunities for First Merchants and OFG Bancorp

0.59

Correlation Coefficient

First Merchants  OFG Bancorp

Very weak diversification

The 3 months correlation between First and OFG is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding First Merchants and OFG Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OFG Bancorp 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 OFG Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OFG Bancorp has no effect on the direction of First Merchants i.e., First Merchants and OFG Bancorp go up and down completely randomly.

Pair Corralation between First Merchants and OFG Bancorp

Given the investment horizon of 90 days First Merchants is expected to generate 1.06 times more return on investment than OFG Bancorp. However, First Merchants is 1.06 times more volatile than OFG Bancorp. It trades about 0.11 of its potential returns per unit of risk. OFG Bancorp is currently generating about 0.01 per unit of risk. If you would invest  3,663  in First Merchants on September 14, 2024 and sell it today you would earn a total of  654.00  from holding First Merchants or generate 17.85% return on investment over 90 days.

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

First Merchants  vs.  OFG Bancorp

First Merchants

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Merchants are ranked lower than 8 (%) 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.

OFG Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days OFG Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, OFG Bancorp is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with First Merchants and OFG Bancorp

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

The idea behind First Merchants and OFG Bancorp 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.