Correlation Between Bank First and First Merchants

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

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

Diversification Opportunities for Bank First and First Merchants

0.97

Correlation Coefficient

Bank First  First Merchants

Almost no diversification

The 3 months correlation between Bank and First is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Bank First National and First Merchants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Merchants and Bank First 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 Bank First National are associated (or correlated) with First Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Merchants has no effect on the direction of Bank First i.e., Bank First and First Merchants go up and down completely randomly.

Pair Corralation between Bank First and First Merchants

Considering the 90-day investment horizon Bank First National is expected to generate 0.97 times more return on investment than First Merchants. However, Bank First National is 1.03 times less risky than First Merchants. It trades about 0.11 of its potential returns per unit of risk. First Merchants is currently generating about 0.1 per unit of risk. If you would invest  9,089  in Bank First National on September 3, 2024 and sell it today you would earn a total of  1,598  from holding Bank First National or generate 17.58% return on investment over 90 days.

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

Bank First National  vs.  First Merchants

Bank First National

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank First National are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Bank First exhibited solid returns over the last few months and may actually be approaching a breakup point.

First Merchants

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Merchants are ranked lower than 7 (%) 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.

Pair Trading with Bank First and First Merchants

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

The idea behind Bank First National and First Merchants 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.