Correlation Between First Merchants and Bank First

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

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

Diversification Opportunities for First Merchants and Bank First

0.74

Correlation Coefficient

First Merchants  Bank First

Poor diversification

The 3 months correlation between First and Bank is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding First Merchants and Bank First National in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank First National and First Merchants 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 First Merchants are associated (or correlated) with Bank First. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank First National has no effect on the direction of First Merchants i.e., First Merchants and Bank First go up and down completely randomly.

Pair Corralation between First Merchants and Bank First

Given the investment horizon of 90 days First Merchants is expected to generate 1.11 times more return on investment than Bank First. However, First Merchants is 1.11 times more volatile than Bank First National. It trades about 0.02 of its potential returns per unit of risk. Bank First National is currently generating about -0.01 per unit of risk. If you would invest  4,334  in First Merchants on December 1, 2024 and sell it today you would earn a total of  46.00  from holding First Merchants or generate 1.06% return on investment over 90 days.

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

First Merchants  vs.  Bank First National

First Merchants

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Merchants are ranked lower than 1 (%) 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.

Bank First National

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank First National has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Bank First is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with First Merchants and Bank First

The main advantage of trading using opposite First Merchants and Bank First positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Merchants position performs unexpectedly, Bank First 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 Bank First will offset losses from the drop in Bank First's long position.

The idea behind First Merchants and Bank First National 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.