Correlation Between German American and Mercantile Bank

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

By analyzing existing cross correlation between German American Bancorp and Mercantile Bank, you can compare the effects of market volatilities on German American and Mercantile Bank 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 German American with a short position of Mercantile Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of German American and Mercantile Bank.

Diversification Opportunities for German American and Mercantile Bank

0.96

Correlation Coefficient

German American  Mercantile Bank

Almost no diversification

The 3 months correlation between German and Mercantile is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding German American Bancorp and Mercantile Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercantile Bank and German American 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 German American Bancorp are associated (or correlated) with Mercantile Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mercantile Bank has no effect on the direction of German American i.e., German American and Mercantile Bank go up and down completely randomly.

Pair Corralation between German American and Mercantile Bank

Given the investment horizon of 90 days German American is expected to generate 1.12 times less return on investment than Mercantile Bank. But when comparing it to its historical volatility, German American Bancorp is 1.38 times less risky than Mercantile Bank. It trades about 0.11 of its potential returns per unit of risk. Mercantile Bank is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  4,401  in Mercantile Bank on September 4, 2024 and sell it today you would earn a total of  669.00  from holding Mercantile Bank or generate 15.2% return on investment over 90 days.

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

German American Bancorp  vs.  Mercantile Bank

German American Bancorp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in German American Bancorp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental drivers, German American exhibited solid returns over the last few months and may actually be approaching a breakup point.

Mercantile Bank

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mercantile Bank are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Mercantile Bank displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with German American and Mercantile Bank

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

The idea behind German American Bancorp and Mercantile Bank 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.