Correlation Between Merchants National and Burnham Holdings

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

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

Diversification Opportunities for Merchants National and Burnham Holdings

-0.07

Correlation Coefficient

Merchants National  Burnham Holdings

Good diversification

The 3 months correlation between Merchants and Burnham is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Merchants National Properties and Burnham Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Burnham Holdings and Merchants National 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 National Properties are associated (or correlated) with Burnham Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Burnham Holdings has no effect on the direction of Merchants National i.e., Merchants National and Burnham Holdings go up and down completely randomly.

Pair Corralation between Merchants National and Burnham Holdings

Given the investment horizon of 90 days Merchants National Properties is expected to generate 1.01 times more return on investment than Burnham Holdings. However, Merchants National is 1.01 times more volatile than Burnham Holdings. It trades about 0.07 of its potential returns per unit of risk. Burnham Holdings is currently generating about 0.01 per unit of risk. If you would invest  173,500  in Merchants National Properties on October 25, 2024 and sell it today you would earn a total of  11,792  from holding Merchants National Properties or generate 6.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.31%
Values	Daily Returns

Merchants National Properties  vs.  Burnham Holdings

Merchants National

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Merchants National Properties are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Merchants National may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Burnham Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Burnham Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Burnham Holdings is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Merchants National and Burnham Holdings

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

The idea behind Merchants National Properties and Burnham Holdings 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 Stocks Directory module to find actively traded stocks across global markets.