Correlation Between Merchants Bancorp and Loandepot

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

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

Diversification Opportunities for Merchants Bancorp and Loandepot

0.39

Correlation Coefficient

Merchants Bancorp  Loandepot

Weak diversification

The 3 months correlation between Merchants and Loandepot is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Merchants Bancorp and Loandepot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Loandepot and Merchants Bancorp 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 Merchants Bancorp are associated (or correlated) with Loandepot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Loandepot has no effect on the direction of Merchants Bancorp i.e., Merchants Bancorp and Loandepot go up and down completely randomly.

Pair Corralation between Merchants Bancorp and Loandepot

Given the investment horizon of 90 days Merchants Bancorp is expected to generate 0.37 times more return on investment than Loandepot. However, Merchants Bancorp is 2.67 times less risky than Loandepot. It trades about -0.53 of its potential returns per unit of risk. Loandepot is currently generating about -0.28 per unit of risk. If you would invest  4,099  in Merchants Bancorp on September 23, 2024 and sell it today you would lose (484.00) from holding Merchants Bancorp or give up 11.81% of portfolio value over 90 days.

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

Merchants Bancorp  vs.  Loandepot

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 inconsistent 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.

Loandepot

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Loandepot has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Merchants Bancorp and Loandepot

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

The idea behind Merchants Bancorp and Loandepot 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.