Correlation Between Merchants Bancorp and First Guaranty

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

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

Diversification Opportunities for Merchants Bancorp and First Guaranty

0.39

Correlation Coefficient

Merchants Bancorp  First Guaranty

Weak diversification

The 3 months correlation between Merchants and First is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Merchants Bancorp and First Guaranty Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Guaranty Bancshares and Merchants 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 Merchants Bancorp are associated (or correlated) with First Guaranty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Guaranty Bancshares has no effect on the direction of Merchants Bancorp i.e., Merchants Bancorp and First Guaranty go up and down completely randomly.

Pair Corralation between Merchants Bancorp and First Guaranty

Assuming the 90 days horizon Merchants Bancorp is expected to generate 1.54 times less return on investment than First Guaranty. But when comparing it to its historical volatility, Merchants Bancorp is 1.09 times less risky than First Guaranty. It trades about 0.1 of its potential returns per unit of risk. First Guaranty Bancshares is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,953  in First Guaranty Bancshares on September 4, 2024 and sell it today you would earn a total of  236.00  from holding First Guaranty Bancshares or generate 12.08% return on investment over 90 days.

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

Merchants Bancorp  vs.  First Guaranty Bancshares

Merchants Bancorp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Merchants Bancorp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Merchants Bancorp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

First Guaranty Bancshares

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Guaranty Bancshares are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak forward indicators, First Guaranty may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Merchants Bancorp and First Guaranty

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

The idea behind Merchants Bancorp and First Guaranty Bancshares 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.