Correlation Between MidWestOne Financial and Merchants Bancorp

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

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

Diversification Opportunities for MidWestOne Financial and Merchants Bancorp

0.67

Correlation Coefficient

MidWestOne Financial  Merchants Bancorp

Poor diversification

The 3 months correlation between MidWestOne and Merchants is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding MidWestOne Financial Group and Merchants Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merchants Bancorp and MidWestOne Financial 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 MidWestOne Financial Group are associated (or correlated) with Merchants Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merchants Bancorp has no effect on the direction of MidWestOne Financial i.e., MidWestOne Financial and Merchants Bancorp go up and down completely randomly.

Pair Corralation between MidWestOne Financial and Merchants Bancorp

Given the investment horizon of 90 days MidWestOne Financial Group is expected to under-perform the Merchants Bancorp. But the stock apears to be less risky and, when comparing its historical volatility, MidWestOne Financial Group is 1.15 times less risky than Merchants Bancorp. The stock trades about -0.07 of its potential returns per unit of risk. The Merchants Bancorp is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  4,080  in Merchants Bancorp on December 1, 2024 and sell it today you would lose (8.00) from holding Merchants Bancorp or give up 0.2% of portfolio value over 90 days.

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

MidWestOne Financial Group  vs.  Merchants Bancorp

MidWestOne Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days MidWestOne Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Merchants Bancorp

Risk-Adjusted Performance

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.

Pair Trading with MidWestOne Financial and Merchants Bancorp

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

The idea behind MidWestOne Financial Group and Merchants 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..