Correlation Between Grand River and First Merchants

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

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

Diversification Opportunities for Grand River and First Merchants

0.6

Correlation Coefficient

Grand River  First Merchants

Poor diversification

The 3 months correlation between Grand and First is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Grand River Commerce and First Merchants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Merchants and Grand River 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 Grand River Commerce are associated (or correlated) with First Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Merchants has no effect on the direction of Grand River i.e., Grand River and First Merchants go up and down completely randomly.

Pair Corralation between Grand River and First Merchants

Given the investment horizon of 90 days Grand River Commerce is expected to generate 1.13 times more return on investment than First Merchants. However, Grand River is 1.13 times more volatile than First Merchants. It trades about 0.31 of its potential returns per unit of risk. First Merchants is currently generating about 0.04 per unit of risk. If you would invest  290.00  in Grand River Commerce on December 27, 2024 and sell it today you would earn a total of  110.00  from holding Grand River Commerce or generate 37.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Grand River Commerce  vs.  First Merchants

Grand River Commerce

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Grand River Commerce are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Grand River showed solid returns over the last few months and may actually be approaching a breakup point.

First Merchants

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Merchants are ranked lower than 2 (%) 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.

Pair Trading with Grand River and First Merchants

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

The idea behind Grand River Commerce and First Merchants 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.