Correlation Between First Merchants and 191216CP3

Can any of the company-specific risk be diversified away by investing in both First Merchants and 191216CP3 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 191216CP3 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between First Merchants and KO 4125 25 MAR 40, you can compare the effects of market volatilities on First Merchants and 191216CP3 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 191216CP3. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Merchants and 191216CP3.

Diversification Opportunities for First Merchants and 191216CP3

-0.47

Correlation Coefficient

First Merchants  191216CP3

Very good diversification

The 3 months correlation between First and 191216CP3 is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding First Merchants and KO 4125 25 MAR 40 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KO 4125 25 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 191216CP3. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KO 4125 25 has no effect on the direction of First Merchants i.e., First Merchants and 191216CP3 go up and down completely randomly.

Pair Corralation between First Merchants and 191216CP3

Given the investment horizon of 90 days First Merchants is expected to generate 10.94 times less return on investment than 191216CP3. But when comparing it to its historical volatility, First Merchants is 1.28 times less risky than 191216CP3. It trades about 0.03 of its potential returns per unit of risk. KO 4125 25 MAR 40 is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  8,691  in KO 4125 25 MAR 40 on December 29, 2024 and sell it today you would earn a total of  994.00  from holding KO 4125 25 MAR 40 or generate 11.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	40.98%
Values	Daily Returns

First Merchants  vs.  KO 4125 25 MAR 40

First Merchants

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Merchants are ranked lower than 2 (%) 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.

KO 4125 25

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in KO 4125 25 MAR 40 are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, 191216CP3 sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Merchants and 191216CP3

The main advantage of trading using opposite First Merchants and 191216CP3 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Merchants position performs unexpectedly, 191216CP3 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 191216CP3 will offset losses from the drop in 191216CP3's long position.

The idea behind First Merchants and KO 4125 25 MAR 40 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.