Correlation Between Guild Holdings and Merchants Bancorp

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

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

Diversification Opportunities for Guild Holdings and Merchants Bancorp

0.8

Correlation Coefficient

Guild Holdings  Merchants Bancorp

Very poor diversification

The 3 months correlation between Guild and Merchants is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Guild Holdings Co and Merchants Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merchants Bancorp and Guild Holdings 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 Guild Holdings Co are associated (or correlated) with Merchants Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merchants Bancorp has no effect on the direction of Guild Holdings i.e., Guild Holdings and Merchants Bancorp go up and down completely randomly.

Pair Corralation between Guild Holdings and Merchants Bancorp

Given the investment horizon of 90 days Guild Holdings Co is expected to generate 0.46 times more return on investment than Merchants Bancorp. However, Guild Holdings Co is 2.15 times less risky than Merchants Bancorp. It trades about -0.11 of its potential returns per unit of risk. Merchants Bancorp is currently generating about -0.08 per unit of risk. If you would invest  1,542  in Guild Holdings Co on September 21, 2024 and sell it today you would lose (135.00) from holding Guild Holdings Co or give up 8.75% of portfolio value over 90 days.

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

Guild Holdings Co  vs.  Merchants Bancorp

Guild Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guild Holdings Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's essential indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Merchants Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Guild Holdings and Merchants Bancorp

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

The idea behind Guild Holdings Co and Merchants Bancorp 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.