Correlation Between First Merchants and Southern BancShares

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

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

Diversification Opportunities for First Merchants and Southern BancShares

0.68

Correlation Coefficient

First Merchants  Southern BancShares

Poor diversification

The 3 months correlation between First and Southern is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding First Merchants and Southern BancShares NC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern BancShares 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 Southern BancShares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern BancShares has no effect on the direction of First Merchants i.e., First Merchants and Southern BancShares go up and down completely randomly.

Pair Corralation between First Merchants and Southern BancShares

Given the investment horizon of 90 days First Merchants is expected to generate 1.36 times less return on investment than Southern BancShares. In addition to that, First Merchants is 1.12 times more volatile than Southern BancShares NC. It trades about 0.06 of its total potential returns per unit of risk. Southern BancShares NC is currently generating about 0.1 per unit of volatility. If you would invest  536,512  in Southern BancShares NC on October 3, 2024 and sell it today you would earn a total of  273,488  from holding Southern BancShares NC or generate 50.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	70.05%
Values	Daily Returns

First Merchants  vs.  Southern BancShares NC

First Merchants

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Merchants are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, First Merchants exhibited solid returns over the last few months and may actually be approaching a breakup point.

Southern BancShares

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Southern BancShares NC are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Southern BancShares exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Merchants and Southern BancShares

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

The idea behind First Merchants and Southern BancShares NC 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 Commodity Directory module to find actively traded commodities issued by global exchanges.