Correlation Between Truist Financial and Mercantile Bank

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

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

Diversification Opportunities for Truist Financial and Mercantile Bank

-0.5

Correlation Coefficient

Truist Financial  Mercantile Bank

Very good diversification

The 3 months correlation between Truist and Mercantile is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Truist Financial and Mercantile Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercantile Bank and Truist 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 Truist Financial are associated (or correlated) with Mercantile Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mercantile Bank has no effect on the direction of Truist Financial i.e., Truist Financial and Mercantile Bank go up and down completely randomly.

Pair Corralation between Truist Financial and Mercantile Bank

Assuming the 90 days trading horizon Truist Financial is expected to under-perform the Mercantile Bank. But the preferred stock apears to be less risky and, when comparing its historical volatility, Truist Financial is 3.19 times less risky than Mercantile Bank. The preferred stock trades about -0.03 of its potential returns per unit of risk. The Mercantile Bank is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  4,532  in Mercantile Bank on August 31, 2024 and sell it today you would earn a total of  521.00  from holding Mercantile Bank or generate 11.5% return on investment over 90 days.

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

Truist Financial  vs.  Mercantile Bank

Truist Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Truist Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental indicators, Truist Financial is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Mercantile Bank

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mercantile Bank are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Mercantile Bank displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Truist Financial and Mercantile Bank

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

The idea behind Truist Financial and Mercantile Bank 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.