Correlation Between First Merchants and Scientific Industries

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

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

Diversification Opportunities for First Merchants and Scientific Industries

-0.55

Correlation Coefficient

First Merchants  Scientific Industries

Excellent diversification

The 3 months correlation between First and Scientific is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding First Merchants and Scientific Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scientific Industries 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 Scientific Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scientific Industries has no effect on the direction of First Merchants i.e., First Merchants and Scientific Industries go up and down completely randomly.

Pair Corralation between First Merchants and Scientific Industries

Given the investment horizon of 90 days First Merchants is expected to generate 0.33 times more return on investment than Scientific Industries. However, First Merchants is 2.99 times less risky than Scientific Industries. It trades about 0.08 of its potential returns per unit of risk. Scientific Industries is currently generating about -0.04 per unit of risk. If you would invest  3,570  in First Merchants on October 1, 2024 and sell it today you would earn a total of  455.00  from holding First Merchants or generate 12.75% return on investment over 90 days.

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

First Merchants  vs.  Scientific Industries

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.

Scientific Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Scientific Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with First Merchants and Scientific Industries

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

The idea behind First Merchants and Scientific Industries 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.