Correlation Between First Merchants and Texas Gulf

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

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

Diversification Opportunities for First Merchants and Texas Gulf

-0.5

Correlation Coefficient

First Merchants  Texas Gulf

Very good diversification

The 3 months correlation between First and Texas is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding First Merchants and Texas Gulf Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Texas Gulf Energy 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 Texas Gulf. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Texas Gulf Energy has no effect on the direction of First Merchants i.e., First Merchants and Texas Gulf go up and down completely randomly.

Pair Corralation between First Merchants and Texas Gulf

Given the investment horizon of 90 days First Merchants is expected to under-perform the Texas Gulf. But the stock apears to be less risky and, when comparing its historical volatility, First Merchants is 1.11 times less risky than Texas Gulf. The stock trades about -0.46 of its potential returns per unit of risk. The Texas Gulf Energy is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  264,669  in Texas Gulf Energy on October 15, 2024 and sell it today you would earn a total of  7,905  from holding Texas Gulf Energy or generate 2.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	94.74%
Values	Daily Returns

First Merchants  vs.  Texas Gulf Energy

First Merchants

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days First Merchants has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Texas Gulf Energy

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Texas Gulf Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Texas Gulf is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with First Merchants and Texas Gulf

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

The idea behind First Merchants and Texas Gulf Energy 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.