Correlation Between First Merchants and Farmers National

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

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

Diversification Opportunities for First Merchants and Farmers National

0.53

Correlation Coefficient

First Merchants  Farmers National

Very weak diversification

The 3 months correlation between First and Farmers is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding First Merchants and Farmers National Banc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmers National Banc 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 Farmers National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farmers National Banc has no effect on the direction of First Merchants i.e., First Merchants and Farmers National go up and down completely randomly.

Pair Corralation between First Merchants and Farmers National

Given the investment horizon of 90 days First Merchants is expected to generate 1.01 times more return on investment than Farmers National. However, First Merchants is 1.01 times more volatile than Farmers National Banc. It trades about 0.04 of its potential returns per unit of risk. Farmers National Banc is currently generating about -0.06 per unit of risk. If you would invest  3,968  in First Merchants on December 28, 2024 and sell it today you would earn a total of  136.00  from holding First Merchants or generate 3.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

First Merchants  vs.  Farmers National Banc

First Merchants

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Merchants are ranked lower than 3 (%) 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.

Farmers National Banc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Farmers National Banc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Farmers National is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Merchants and Farmers National

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

The idea behind First Merchants and Farmers National Banc 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.