Correlation Between Eagle Bancorp and Merchants Bancorp

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

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

Diversification Opportunities for Eagle Bancorp and Merchants Bancorp

-0.09

Correlation Coefficient

Eagle Bancorp  Merchants Bancorp

Good diversification

The 3 months correlation between Eagle and Merchants is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Bancorp and Merchants Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merchants Bancorp 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 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 Eagle Bancorp i.e., Eagle Bancorp and Merchants Bancorp go up and down completely randomly.

Pair Corralation between Eagle Bancorp and Merchants Bancorp

Given the investment horizon of 90 days Eagle Bancorp is expected to under-perform the Merchants Bancorp. In addition to that, Eagle Bancorp is 1.31 times more volatile than Merchants Bancorp. It trades about -0.54 of its total potential returns per unit of risk. Merchants Bancorp is currently generating about 0.0 per unit of volatility. If you would invest  2,177  in Merchants Bancorp on October 14, 2024 and sell it today you would lose (2.00) from holding Merchants Bancorp or give up 0.09% of portfolio value over 90 days.

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

Eagle Bancorp  vs.  Merchants Bancorp

Eagle Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eagle Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental drivers, Eagle Bancorp is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

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 latest unfluctuating performance, the Preferred Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Eagle Bancorp and Merchants Bancorp

The main advantage of trading using opposite Eagle Bancorp and Merchants Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eagle Bancorp 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 Eagle Bancorp 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.