Correlation Between Eagle Bancorp and First Merchants

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

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

Diversification Opportunities for Eagle Bancorp and First Merchants

0.36

Correlation Coefficient

Eagle Bancorp  First Merchants

Weak diversification

The 3 months correlation between Eagle and First is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Bancorp Montana and First Merchants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Merchants and Eagle 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 Eagle Bancorp Montana 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 Eagle Bancorp i.e., Eagle Bancorp and First Merchants go up and down completely randomly.

Pair Corralation between Eagle Bancorp and First Merchants

Given the investment horizon of 90 days Eagle Bancorp Montana is expected to generate 1.06 times more return on investment than First Merchants. However, Eagle Bancorp is 1.06 times more volatile than First Merchants. It trades about 0.12 of its potential returns per unit of risk. First Merchants is currently generating about 0.04 per unit of risk. If you would invest  1,512  in Eagle Bancorp Montana on December 27, 2024 and sell it today you would earn a total of  175.00  from holding Eagle Bancorp Montana or generate 11.57% return on investment over 90 days.

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

Eagle Bancorp Montana  vs.  First Merchants

Eagle Bancorp Montana

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eagle Bancorp Montana are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile primary indicators, Eagle Bancorp may actually be approaching a critical reversion point that can send shares even higher in April 2025.

First Merchants

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Merchants are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, First Merchants is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Eagle Bancorp and First Merchants

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

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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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.