Correlation Between First Merchants and LiveChat Software

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

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

Diversification Opportunities for First Merchants and LiveChat Software

-0.83

Correlation Coefficient

First Merchants  LiveChat Software

Pay attention - limited upside

The 3 months correlation between First and LiveChat is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding First Merchants and LiveChat Software SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LiveChat Software 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 LiveChat Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LiveChat Software has no effect on the direction of First Merchants i.e., First Merchants and LiveChat Software go up and down completely randomly.

Pair Corralation between First Merchants and LiveChat Software

Given the investment horizon of 90 days First Merchants is expected to under-perform the LiveChat Software. But the stock apears to be less risky and, when comparing its historical volatility, First Merchants is 2.03 times less risky than LiveChat Software. The stock trades about -0.39 of its potential returns per unit of risk. The LiveChat Software SA is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  1,101  in LiveChat Software SA on October 14, 2024 and sell it today you would earn a total of  166.00  from holding LiveChat Software SA or generate 15.08% return on investment over 90 days.

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

First Merchants  vs.  LiveChat Software SA

First Merchants

Risk-Adjusted Performance

1 of 100

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.

LiveChat Software

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with First Merchants and LiveChat Software

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

The idea behind First Merchants and LiveChat Software SA 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.