Correlation Between Enterprise Financial and First Merchants

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

Diversification Opportunities for Enterprise Financial and First Merchants

0.97

Correlation Coefficient

Enterprise Financial  First Merchants

Almost no diversification

The 3 months correlation between Enterprise and First is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Enterprise Financial Services and First Merchants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Merchants and Enterprise 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 Enterprise Financial Services 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 Financial i.e., Enterprise Financial and First Merchants go up and down completely randomly.

Pair Corralation between Enterprise Financial and First Merchants

Given the investment horizon of 90 days Enterprise Financial Services is expected to generate 0.93 times more return on investment than First Merchants. However, Enterprise Financial Services is 1.07 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  5,173  in Enterprise Financial Services on September 3, 2024 and sell it today you would earn a total of  886.00  from holding Enterprise Financial Services or generate 17.13% return on investment over 90 days.

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

Enterprise Financial Services  vs.  First Merchants

Enterprise Financial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Enterprise Financial Services are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Enterprise Financial 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 Enterprise Financial and First Merchants

The main advantage of trading using opposite Enterprise Financial and First Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Enterprise Financial 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 Financial Services 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.