Correlation Between Vinci Partners and Merchants Bancorp

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

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

Diversification Opportunities for Vinci Partners and Merchants Bancorp

0.6

Correlation Coefficient

Vinci Partners  Merchants Bancorp

Poor diversification

The 3 months correlation between Vinci and Merchants is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Vinci Partners Investments and Merchants Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merchants Bancorp and Vinci Partners 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 Vinci Partners Investments 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 Vinci Partners i.e., Vinci Partners and Merchants Bancorp go up and down completely randomly.

Pair Corralation between Vinci Partners and Merchants Bancorp

Given the investment horizon of 90 days Vinci Partners Investments is expected to under-perform the Merchants Bancorp. But the stock apears to be less risky and, when comparing its historical volatility, Vinci Partners Investments is 1.21 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 Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Vinci Partners Investments  vs.  Merchants Bancorp

Vinci Partners Inves

Risk-Adjusted Performance

Very Weak

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

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 Vinci Partners and Merchants Bancorp

The main advantage of trading using opposite Vinci Partners and Merchants Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vinci Partners 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 Vinci Partners Investments 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.