Correlation Between First Merchants and Tectonic Financial

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

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

Diversification Opportunities for First Merchants and Tectonic Financial

0.36

Correlation Coefficient

First Merchants  Tectonic Financial

Weak diversification

The 3 months correlation between First and Tectonic is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding First Merchants and Tectonic Financial PR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tectonic Financial 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 Tectonic Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tectonic Financial has no effect on the direction of First Merchants i.e., First Merchants and Tectonic Financial go up and down completely randomly.

Pair Corralation between First Merchants and Tectonic Financial

Assuming the 90 days horizon First Merchants is expected to under-perform the Tectonic Financial. But the stock apears to be less risky and, when comparing its historical volatility, First Merchants is 1.6 times less risky than Tectonic Financial. The stock trades about -0.05 of its potential returns per unit of risk. The Tectonic Financial PR is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,002  in Tectonic Financial PR on November 28, 2024 and sell it today you would earn a total of  45.00  from holding Tectonic Financial PR or generate 4.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.31%
Values	Daily Returns

First Merchants  vs.  Tectonic Financial PR

First Merchants

Risk-Adjusted Performance

Very Weak

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

Tectonic Financial

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tectonic Financial PR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Tectonic Financial is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with First Merchants and Tectonic Financial

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

The idea behind First Merchants and Tectonic Financial PR 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.