Correlation Between Woodlands Financial and First Merchants

Can any of the company-specific risk be diversified away by investing in both Woodlands 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 Woodlands 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 Woodlands Financial Services and First Merchants, you can compare the effects of market volatilities on Woodlands 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 Woodlands Financial with a short position of First Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Woodlands Financial and First Merchants.

Diversification Opportunities for Woodlands Financial and First Merchants

0.69

Correlation Coefficient

Woodlands Financial  First Merchants

Poor diversification

The 3 months correlation between Woodlands and First is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Woodlands Financial Services and First Merchants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Merchants and Woodlands 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 Woodlands Financial Services 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 Woodlands Financial i.e., Woodlands Financial and First Merchants go up and down completely randomly.

Pair Corralation between Woodlands Financial and First Merchants

Given the investment horizon of 90 days Woodlands Financial Services is expected to generate 1.64 times more return on investment than First Merchants. However, Woodlands Financial is 1.64 times more volatile than First Merchants. It trades about 0.12 of its potential returns per unit of risk. First Merchants is currently generating about 0.03 per unit of risk. If you would invest  1,976  in Woodlands Financial Services on December 29, 2024 and sell it today you would earn a total of  324.00  from holding Woodlands Financial Services or generate 16.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	91.8%
Values	Daily Returns

Woodlands Financial Services  vs.  First Merchants

Woodlands Financial

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Woodlands Financial Services are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Woodlands Financial displayed solid returns over the last few months and may actually be approaching a breakup point.

First Merchants

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Merchants are ranked lower than 2 (%) 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 Woodlands Financial and First Merchants

The main advantage of trading using opposite Woodlands Financial and First Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Woodlands 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 Woodlands Financial Services 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.