Correlation Between First Merchants and Stamper Oil

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

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

Diversification Opportunities for First Merchants and Stamper Oil

-0.33

Correlation Coefficient

First Merchants  Stamper Oil

Very good diversification

The 3 months correlation between First and Stamper is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding First Merchants and Stamper Oil Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stamper Oil Gas 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 Stamper Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stamper Oil Gas has no effect on the direction of First Merchants i.e., First Merchants and Stamper Oil go up and down completely randomly.

Pair Corralation between First Merchants and Stamper Oil

Given the investment horizon of 90 days First Merchants is expected to generate 5.88 times less return on investment than Stamper Oil. But when comparing it to its historical volatility, First Merchants is 7.46 times less risky than Stamper Oil. It trades about 0.09 of its potential returns per unit of risk. Stamper Oil Gas is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1.22  in Stamper Oil Gas on September 23, 2024 and sell it today you would lose (0.22) from holding Stamper Oil Gas or give up 18.03% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.73%
Values	Daily Returns

First Merchants  vs.  Stamper Oil Gas

First Merchants

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Merchants are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting primary indicators, First Merchants may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Stamper Oil Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stamper Oil Gas has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Stamper Oil 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 Stamper Oil

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

The idea behind First Merchants and Stamper Oil Gas 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.