Correlation Between Merchants Bancorp and Western New

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

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

Diversification Opportunities for Merchants Bancorp and Western New

-0.33

Correlation Coefficient

Merchants Bancorp  Western New

Very good diversification

The 3 months correlation between Merchants and Western is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Merchants Bancorp and Western New England in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western New England 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 Western New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western New England has no effect on the direction of Merchants Bancorp i.e., Merchants Bancorp and Western New go up and down completely randomly.

Pair Corralation between Merchants Bancorp and Western New

Given the investment horizon of 90 days Merchants Bancorp is expected to under-perform the Western New. In addition to that, Merchants Bancorp is 2.81 times more volatile than Western New England. It trades about -0.03 of its total potential returns per unit of risk. Western New England is currently generating about 0.09 per unit of volatility. If you would invest  879.00  in Western New England on September 1, 2024 and sell it today you would earn a total of  59.00  from holding Western New England or generate 6.71% return on investment over 90 days.

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

Merchants Bancorp  vs.  Western New England

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 very healthy forward indicators, Merchants Bancorp is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Western New England

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western New England are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Western New may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Merchants Bancorp and Western New

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

The idea behind Merchants Bancorp and Western New England 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.