Correlation Between Merchants Bancorp and PacWest Bancorp

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

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

Diversification Opportunities for Merchants Bancorp and PacWest Bancorp

0.0

Correlation Coefficient

Merchants Bancorp  PacWest Bancorp

Pay attention - limited upside

The 3 months correlation between Merchants and PacWest is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Merchants Bancorp and PacWest Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PacWest Bancorp 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 PacWest Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PacWest Bancorp has no effect on the direction of Merchants Bancorp i.e., Merchants Bancorp and PacWest Bancorp go up and down completely randomly.

Pair Corralation between Merchants Bancorp and PacWest Bancorp

If you would invest  1,968  in Merchants Bancorp on December 30, 2024 and sell it today you would earn a total of  114.00  from holding Merchants Bancorp or generate 5.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Merchants Bancorp  vs.  PacWest Bancorp

Merchants Bancorp

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Merchants Bancorp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Merchants Bancorp is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

PacWest Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days PacWest Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, PacWest Bancorp is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Merchants Bancorp and PacWest Bancorp

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

The idea behind Merchants Bancorp and PacWest 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.