Correlation Between Merchants Marine and Pacific West

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

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

Diversification Opportunities for Merchants Marine and Pacific West

-0.35

Correlation Coefficient

Merchants Marine  Pacific West

Very good diversification

The 3 months correlation between Merchants and Pacific is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Merchants Marine Bancorp and Pacific West Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific West Bancorp and Merchants Marine 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 Marine Bancorp are associated (or correlated) with Pacific West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific West Bancorp has no effect on the direction of Merchants Marine i.e., Merchants Marine and Pacific West go up and down completely randomly.

Pair Corralation between Merchants Marine and Pacific West

Given the investment horizon of 90 days Merchants Marine Bancorp is expected to under-perform the Pacific West. But the otc stock apears to be less risky and, when comparing its historical volatility, Merchants Marine Bancorp is 2.0 times less risky than Pacific West. The otc stock trades about -0.09 of its potential returns per unit of risk. The Pacific West Bancorp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,050  in Pacific West Bancorp on October 26, 2024 and sell it today you would earn a total of  60.00  from holding Pacific West Bancorp or generate 5.71% return on investment over 90 days.

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

Merchants Marine Bancorp  vs.  Pacific West Bancorp

Merchants Marine Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merchants Marine Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pacific West Bancorp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pacific West Bancorp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal fundamental drivers, Pacific West may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Merchants Marine and Pacific West

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

The idea behind Merchants Marine Bancorp and Pacific West 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.