Correlation Between Ready Capital and Merchants Bancorp

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

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

Diversification Opportunities for Ready Capital and Merchants Bancorp

-0.24

Correlation Coefficient

Ready Capital  Merchants Bancorp

Very good diversification

The 3 months correlation between Ready and Merchants is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Ready Capital Corp and Merchants Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merchants Bancorp and Ready Capital 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 Ready Capital Corp 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 Ready Capital i.e., Ready Capital and Merchants Bancorp go up and down completely randomly.

Pair Corralation between Ready Capital and Merchants Bancorp

Allowing for the 90-day total investment horizon Ready Capital Corp is expected to under-perform the Merchants Bancorp. But the stock apears to be less risky and, when comparing its historical volatility, Ready Capital Corp is 1.02 times less risky than Merchants Bancorp. The stock trades about -0.02 of its potential returns per unit of risk. The Merchants Bancorp is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  4,118  in Merchants Bancorp on November 28, 2024 and sell it today you would earn a total of  35.00  from holding Merchants Bancorp or generate 0.85% return on investment over 90 days.

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

Ready Capital Corp  vs.  Merchants Bancorp

Ready Capital Corp

Risk-Adjusted Performance

Very Weak

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

Merchants Bancorp

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Merchants Bancorp are ranked lower than 1 (%) 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 Ready Capital and Merchants Bancorp

The main advantage of trading using opposite Ready Capital and Merchants Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ready Capital 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 Ready Capital Corp 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.