Correlation Between First Merchants and First Foundation

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

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

Diversification Opportunities for First Merchants and First Foundation

0.02

Correlation Coefficient

First Merchants  First Foundation

Significant diversification

The 3 months correlation between First and First is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding First Merchants and First Foundation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Foundation 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 First Foundation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Foundation has no effect on the direction of First Merchants i.e., First Merchants and First Foundation go up and down completely randomly.

Pair Corralation between First Merchants and First Foundation

Assuming the 90 days horizon First Merchants is expected to generate 0.16 times more return on investment than First Foundation. However, First Merchants is 6.37 times less risky than First Foundation. It trades about 0.04 of its potential returns per unit of risk. First Foundation is currently generating about -0.05 per unit of risk. If you would invest  2,528  in First Merchants on October 23, 2024 and sell it today you would earn a total of  37.00  from holding First Merchants or generate 1.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

First Merchants  vs.  First Foundation

First Merchants

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Merchants are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, First Merchants is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

First Foundation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Foundation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with First Merchants and First Foundation

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

The idea behind First Merchants and First Foundation 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.