Correlation Between United Community and Merchants Bancorp

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

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

Diversification Opportunities for United Community and Merchants Bancorp

0.12

Correlation Coefficient

United Community  Merchants Bancorp

Average diversification

The 3 months correlation between United and Merchants is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding United Community Banks and Merchants Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merchants Bancorp and United Community 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 United Community Banks 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 United Community i.e., United Community and Merchants Bancorp go up and down completely randomly.

Pair Corralation between United Community and Merchants Bancorp

Assuming the 90 days horizon United Community Banks is expected to generate 1.31 times more return on investment than Merchants Bancorp. However, United Community is 1.31 times more volatile than Merchants Bancorp. It trades about 0.02 of its potential returns per unit of risk. Merchants Bancorp is currently generating about 0.03 per unit of risk. If you would invest  2,184  in United Community Banks on September 13, 2024 and sell it today you would earn a total of  250.00  from holding United Community Banks or generate 11.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	91.09%
Values	Daily Returns

United Community Banks  vs.  Merchants Bancorp

United Community Banks

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Community Banks has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, United Community is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Merchants Bancorp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Merchants Bancorp are ranked lower than 2 (%) 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 recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with United Community and Merchants Bancorp

The main advantage of trading using opposite United Community and Merchants Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Community 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 United Community Banks 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.

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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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.