Correlation Between Bread Financial and Merchants Bancorp

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

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

Diversification Opportunities for Bread Financial and Merchants Bancorp

-0.62

Correlation Coefficient

Bread Financial  Merchants Bancorp

Excellent diversification

The 3 months correlation between Bread and Merchants is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Bread Financial Holdings and Merchants Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merchants Bancorp and Bread Financial 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 Bread Financial Holdings 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 Bread Financial i.e., Bread Financial and Merchants Bancorp go up and down completely randomly.

Pair Corralation between Bread Financial and Merchants Bancorp

Considering the 90-day investment horizon Bread Financial Holdings is expected to generate 1.79 times more return on investment than Merchants Bancorp. However, Bread Financial is 1.79 times more volatile than Merchants Bancorp. It trades about -0.01 of its potential returns per unit of risk. Merchants Bancorp is currently generating about -0.4 per unit of risk. If you would invest  6,115  in Bread Financial Holdings on October 4, 2024 and sell it today you would lose (68.00) from holding Bread Financial Holdings or give up 1.11% of portfolio value over 90 days.

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

Bread Financial Holdings  vs.  Merchants Bancorp

Bread Financial Holdings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bread Financial Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal technical and fundamental indicators, Bread Financial demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Merchants Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merchants Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Bread Financial and Merchants Bancorp

The main advantage of trading using opposite Bread Financial and Merchants Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bread Financial 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 Bread Financial Holdings 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.