Correlation Between Northern Trust and Merchants Bancorp

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

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

Diversification Opportunities for Northern Trust and Merchants Bancorp

0.08

Correlation Coefficient

Northern Trust  Merchants Bancorp

Significant diversification

The 3 months correlation between Northern and Merchants is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Northern Trust and Merchants Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merchants Bancorp and Northern Trust 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 Northern Trust are associated (or correlated) with Merchants Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merchants Bancorp has no effect on the direction of Northern Trust i.e., Northern Trust and Merchants Bancorp go up and down completely randomly.

Pair Corralation between Northern Trust and Merchants Bancorp

Assuming the 90 days horizon Northern Trust is expected to generate 1.38 times less return on investment than Merchants Bancorp. In addition to that, Northern Trust is 5.05 times more volatile than Merchants Bancorp. It trades about 0.03 of its total potential returns per unit of risk. Merchants Bancorp is currently generating about 0.23 per unit of volatility. If you would invest  2,472  in Merchants Bancorp on September 2, 2024 and sell it today you would earn a total of  73.00  from holding Merchants Bancorp or generate 2.95% return on investment over 90 days.

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

Northern Trust  vs.  Merchants Bancorp

Northern Trust

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Trust are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Northern Trust is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Merchants Bancorp

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Merchants Bancorp are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Merchants Bancorp is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Northern Trust and Merchants Bancorp

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

The idea behind Northern Trust and Merchants 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.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.