Correlation Between Tectonic Financial and First Merchants

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

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

Diversification Opportunities for Tectonic Financial and First Merchants

0.27

Correlation Coefficient

Tectonic Financial  First Merchants

Modest diversification

The 3 months correlation between Tectonic and First is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Tectonic Financial PR and First Merchants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Merchants and Tectonic 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 Tectonic Financial PR are associated (or correlated) with First Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Merchants has no effect on the direction of Tectonic Financial i.e., Tectonic Financial and First Merchants go up and down completely randomly.

Pair Corralation between Tectonic Financial and First Merchants

Assuming the 90 days horizon Tectonic Financial PR is expected to generate 0.96 times more return on investment than First Merchants. However, Tectonic Financial PR is 1.04 times less risky than First Merchants. It trades about 0.06 of its potential returns per unit of risk. First Merchants is currently generating about 0.02 per unit of risk. If you would invest  1,009  in Tectonic Financial PR on December 22, 2024 and sell it today you would earn a total of  32.00  from holding Tectonic Financial PR or generate 3.17% return on investment over 90 days.

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

Tectonic Financial PR  vs.  First Merchants

Tectonic Financial

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tectonic Financial PR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Tectonic Financial is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

First Merchants

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Merchants are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, First Merchants is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Tectonic Financial and First Merchants

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

The idea behind Tectonic Financial PR and First Merchants 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.