Correlation Between Enterprise Financial and Merchants Bancorp

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

Diversification Opportunities for Enterprise Financial and Merchants Bancorp

-0.48

Correlation Coefficient

Enterprise Financial  Merchants Bancorp

Very good diversification

The 3 months correlation between Enterprise and Merchants is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Enterprise Financial Services and Merchants Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merchants Bancorp 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 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 Enterprise Financial i.e., Enterprise Financial and Merchants Bancorp go up and down completely randomly.

Pair Corralation between Enterprise Financial and Merchants Bancorp

Given the investment horizon of 90 days Enterprise Financial Services is expected to generate 0.79 times more return on investment than Merchants Bancorp. However, Enterprise Financial Services is 1.26 times less risky than Merchants Bancorp. It trades about 0.13 of its potential returns per unit of risk. Merchants Bancorp is currently generating about -0.01 per unit of risk. If you would invest  3,876  in Enterprise Financial Services on October 4, 2024 and sell it today you would earn a total of  1,691  from holding Enterprise Financial Services or generate 43.63% return on investment over 90 days.

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

Enterprise Financial Services  vs.  Merchants Bancorp

Enterprise Financial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Enterprise Financial Services are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal basic indicators, Enterprise Financial exhibited 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 Enterprise Financial and Merchants Bancorp

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