Correlation Between First Merchants and Grand River

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

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

Diversification Opportunities for First Merchants and Grand River

0.69

Correlation Coefficient

First Merchants  Grand River

Poor diversification

The 3 months correlation between First and Grand is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding First Merchants and Grand River Commerce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grand River Commerce 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 Grand River. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grand River Commerce has no effect on the direction of First Merchants i.e., First Merchants and Grand River go up and down completely randomly.

Pair Corralation between First Merchants and Grand River

Given the investment horizon of 90 days First Merchants is expected to generate 15.5 times less return on investment than Grand River. But when comparing it to its historical volatility, First Merchants is 1.22 times less risky than Grand River. It trades about 0.02 of its potential returns per unit of risk. Grand River Commerce is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  305.00  in Grand River Commerce on December 1, 2024 and sell it today you would earn a total of  95.00  from holding Grand River Commerce or generate 31.15% 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.  Grand River Commerce

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.

Grand River Commerce

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Grand River Commerce are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Grand River showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Merchants and Grand River

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

The idea behind First Merchants and Grand River Commerce 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.