Correlation Between First Merchants and MARRIOTT

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

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

Diversification Opportunities for First Merchants and MARRIOTT

-0.26

Correlation Coefficient

First Merchants  MARRIOTT

Very good diversification

The 3 months correlation between First and MARRIOTT is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding First Merchants and MARRIOTT INTL INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MARRIOTT INTL INC 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 MARRIOTT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MARRIOTT INTL INC has no effect on the direction of First Merchants i.e., First Merchants and MARRIOTT go up and down completely randomly.

Pair Corralation between First Merchants and MARRIOTT

Given the investment horizon of 90 days First Merchants is expected to generate 103.46 times less return on investment than MARRIOTT. But when comparing it to its historical volatility, First Merchants is 26.33 times less risky than MARRIOTT. It trades about 0.01 of its potential returns per unit of risk. MARRIOTT INTL INC is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  9,263  in MARRIOTT INTL INC on October 12, 2024 and sell it today you would lose (120.00) from holding MARRIOTT INTL INC or give up 1.3% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	63.23%
Values	Daily Returns

First Merchants  vs.  MARRIOTT INTL INC

First Merchants

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Merchants are ranked lower than 1 (%) 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.

MARRIOTT INTL INC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MARRIOTT INTL INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for MARRIOTT INTL INC investors.

Pair Trading with First Merchants and MARRIOTT

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

The idea behind First Merchants and MARRIOTT INTL INC 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..