Correlation Between Nasdaq and Merchants Bancorp
Can any of the company-specific risk be diversified away by investing in both Nasdaq 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 Nasdaq and Merchants Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nasdaq Inc and Merchants Bancorp, you can compare the effects of market volatilities on Nasdaq 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 Nasdaq with a short position of Merchants Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq and Merchants Bancorp.
Diversification Opportunities for Nasdaq and Merchants Bancorp
-0.73 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Nasdaq and Merchants is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and Merchants Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merchants Bancorp and Nasdaq 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 Nasdaq Inc 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 Nasdaq i.e., Nasdaq and Merchants Bancorp go up and down completely randomly.
Pair Corralation between Nasdaq and Merchants Bancorp
Given the investment horizon of 90 days Nasdaq Inc is expected to generate 1.52 times more return on investment than Merchants Bancorp. However, Nasdaq is 1.52 times more volatile than Merchants Bancorp. It trades about -0.13 of its potential returns per unit of risk. Merchants Bancorp is currently generating about -0.51 per unit of risk. If you would invest 8,128 in Nasdaq Inc on September 26, 2024 and sell it today you would lose (236.00) from holding Nasdaq Inc or give up 2.9% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Nasdaq Inc vs. Merchants Bancorp
Performance |
Timeline |
Nasdaq Inc |
Merchants Bancorp |
Nasdaq and Merchants Bancorp Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Nasdaq and Merchants Bancorp
The main advantage of trading using opposite Nasdaq and Merchants Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq 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 Nasdaq Inc 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.Check out your portfolio center.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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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