Correlation Between Mercantile Investment and Berkshire Hathaway

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

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

Diversification Opportunities for Mercantile Investment and Berkshire Hathaway

0.54

Correlation Coefficient

Mercantile Investment  Berkshire Hathaway

Very weak diversification

The 3 months correlation between Mercantile and Berkshire is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding The Mercantile Investment and Berkshire Hathaway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Berkshire Hathaway and Mercantile Investment 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 The Mercantile Investment are associated (or correlated) with Berkshire Hathaway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Berkshire Hathaway has no effect on the direction of Mercantile Investment i.e., Mercantile Investment and Berkshire Hathaway go up and down completely randomly.

Pair Corralation between Mercantile Investment and Berkshire Hathaway

Assuming the 90 days trading horizon Mercantile Investment is expected to generate 4.67 times less return on investment than Berkshire Hathaway. But when comparing it to its historical volatility, The Mercantile Investment is 1.33 times less risky than Berkshire Hathaway. It trades about 0.02 of its potential returns per unit of risk. Berkshire Hathaway is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  47,675  in Berkshire Hathaway on December 2, 2024 and sell it today you would earn a total of  2,975  from holding Berkshire Hathaway or generate 6.24% return on investment over 90 days.

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

The Mercantile Investment  vs.  Berkshire Hathaway

The Mercantile Investment

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Mercantile Investment are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Mercantile Investment is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Berkshire Hathaway

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Berkshire Hathaway may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Mercantile Investment and Berkshire Hathaway

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

The idea behind The Mercantile Investment and Berkshire Hathaway 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..