Correlation Between Qudian and Merchants Bancorp

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

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

Diversification Opportunities for Qudian and Merchants Bancorp

0.62

Correlation Coefficient

Qudian  Merchants Bancorp

Poor diversification

The 3 months correlation between Qudian and Merchants is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Qudian Inc and Merchants Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merchants Bancorp and Qudian 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 Qudian 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 Qudian i.e., Qudian and Merchants Bancorp go up and down completely randomly.

Pair Corralation between Qudian and Merchants Bancorp

Allowing for the 90-day total investment horizon Qudian Inc is expected to under-perform the Merchants Bancorp. In addition to that, Qudian is 1.61 times more volatile than Merchants Bancorp. It trades about -0.02 of its total potential returns per unit of risk. Merchants Bancorp is currently generating about 0.05 per unit of volatility. If you would invest  3,632  in Merchants Bancorp on December 29, 2024 and sell it today you would earn a total of  168.00  from holding Merchants Bancorp or generate 4.63% return on investment over 90 days.

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

Qudian Inc  vs.  Merchants Bancorp

Qudian Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Qudian Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Qudian is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Merchants Bancorp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Merchants Bancorp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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 Qudian and Merchants Bancorp

The main advantage of trading using opposite Qudian and Merchants Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Qudian 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 Qudian 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.

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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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.