Correlation Between Enterprise Bancorp and First Merchants

Can any of the company-specific risk be diversified away by investing in both Enterprise 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 Enterprise 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 Enterprise Bancorp and First Merchants, you can compare the effects of market volatilities on Enterprise 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 Enterprise Bancorp with a short position of First Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Enterprise Bancorp and First Merchants.

Diversification Opportunities for Enterprise Bancorp and First Merchants

0.86

Correlation Coefficient

Enterprise Bancorp  First Merchants

Very poor diversification

The 3 months correlation between Enterprise and First is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Enterprise Bancorp and First Merchants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Merchants and Enterprise 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 Enterprise Bancorp 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 Enterprise Bancorp i.e., Enterprise Bancorp and First Merchants go up and down completely randomly.

Pair Corralation between Enterprise Bancorp and First Merchants

Given the investment horizon of 90 days Enterprise Bancorp is expected to generate 1.09 times less return on investment than First Merchants. In addition to that, Enterprise Bancorp is 1.07 times more volatile than First Merchants. It trades about 0.02 of its total potential returns per unit of risk. First Merchants is currently generating about 0.03 per unit of volatility. If you would invest  3,968  in First Merchants on December 29, 2024 and sell it today you would earn a total of  71.00  from holding First Merchants or generate 1.79% return on investment over 90 days.

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

Enterprise Bancorp  vs.  First Merchants

Enterprise Bancorp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Enterprise Bancorp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Enterprise Bancorp is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 Enterprise Bancorp and First Merchants

The main advantage of trading using opposite Enterprise Bancorp and First Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Enterprise 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 Enterprise Bancorp 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.