Correlation Between Lake Shore and First Merchants
Can any of the company-specific risk be diversified away by investing in both Lake Shore 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 Lake Shore and First Merchants into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lake Shore Bancorp and First Merchants, you can compare the effects of market volatilities on Lake Shore 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 Lake Shore with a short position of First Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lake Shore and First Merchants.
Diversification Opportunities for Lake Shore and First Merchants
0.39 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Lake and First is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Lake Shore Bancorp and First Merchants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Merchants and Lake Shore 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 Lake Shore Bancorp 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 Lake Shore i.e., Lake Shore and First Merchants go up and down completely randomly.
Pair Corralation between Lake Shore and First Merchants
Given the investment horizon of 90 days Lake Shore is expected to generate 1.56 times less return on investment than First Merchants. But when comparing it to its historical volatility, Lake Shore Bancorp is 1.26 times less risky than First Merchants. It trades about 0.08 of its potential returns per unit of risk. First Merchants is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 3,137 in First Merchants on September 24, 2024 and sell it today you would earn a total of 952.00 from holding First Merchants or generate 30.35% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 94.49% |
Values | Daily Returns |
Lake Shore Bancorp vs. First Merchants
Performance |
Timeline |
Lake Shore Bancorp |
First Merchants |
Lake Shore and First Merchants Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Lake Shore and First Merchants
The main advantage of trading using opposite Lake Shore and First Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lake Shore 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.Lake Shore vs. Home Federal Bancorp | Lake Shore vs. Magyar Bancorp | Lake Shore vs. Community West Bancshares |
First Merchants vs. Home Federal Bancorp | First Merchants vs. First Northwest Bancorp | First Merchants vs. HomeTrust Bancshares | First Merchants vs. Lake Shore Bancorp |
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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