Correlation Between Ford and Merchants Bancorp

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

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

Diversification Opportunities for Ford and Merchants Bancorp

0.23

Correlation Coefficient

Ford  Merchants Bancorp

Modest diversification

The 3 months correlation between Ford and Merchants is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Merchants Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merchants Bancorp and Ford 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 Ford Motor 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 Ford i.e., Ford and Merchants Bancorp go up and down completely randomly.

Pair Corralation between Ford and Merchants Bancorp

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Merchants Bancorp. In addition to that, Ford is 2.09 times more volatile than Merchants Bancorp. It trades about -0.42 of its total potential returns per unit of risk. Merchants Bancorp is currently generating about -0.51 per unit of volatility. If you would invest  2,229  in Merchants Bancorp on September 26, 2024 and sell it today you would lose (159.00) from holding Merchants Bancorp or give up 7.13% of portfolio value over 90 days.

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

Ford Motor  vs.  Merchants Bancorp

Ford Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ford Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Ford is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

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 weak 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 Ford and Merchants Bancorp

The main advantage of trading using opposite Ford and Merchants Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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 Ford Motor 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.