Correlation Between Virginia National and First Merchants

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

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

Diversification Opportunities for Virginia National and First Merchants

0.37

Correlation Coefficient

Virginia National  First Merchants

Weak diversification

The 3 months correlation between Virginia and First is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Virginia National Bankshares and First Merchants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Merchants and Virginia National 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 Virginia National Bankshares 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 Virginia National i.e., Virginia National and First Merchants go up and down completely randomly.

Pair Corralation between Virginia National and First Merchants

Given the investment horizon of 90 days Virginia National Bankshares is expected to under-perform the First Merchants. In addition to that, Virginia National is 1.19 times more volatile than First Merchants. It trades about -0.1 of its total potential returns per unit of risk. First Merchants is currently generating about 0.02 per unit of volatility. If you would invest  4,334  in First Merchants on December 2, 2024 and sell it today you would earn a total of  46.00  from holding First Merchants or generate 1.06% return on investment over 90 days.

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

Virginia National Bankshares  vs.  First Merchants

Virginia National

Risk-Adjusted Performance

Very Weak

Over the last 90 days Virginia National Bankshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's fundamental drivers remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional 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. In spite of rather sound primary indicators, First Merchants is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Virginia National and First Merchants

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

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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.