Correlation Between Woori Financial and First Merchants

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

Diversification Opportunities for Woori Financial and First Merchants

-0.6

Correlation Coefficient

Woori Financial  First Merchants

Excellent diversification

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

Pair Corralation between Woori Financial and First Merchants

Allowing for the 90-day total investment horizon Woori Financial Group is expected to under-perform the First Merchants. In addition to that, Woori Financial is 3.08 times more volatile than First Merchants. It trades about -0.15 of its total potential returns per unit of risk. First Merchants is currently generating about 0.0 per unit of volatility. If you would invest  2,556  in First Merchants on September 17, 2024 and sell it today you would lose (1.00) from holding First Merchants or give up 0.04% of portfolio value over 90 days.

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

Woori Financial Group  vs.  First Merchants

Woori Financial Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Woori Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

First Merchants

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Merchants are ranked lower than 5 (%) 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 Woori Financial and First Merchants

The main advantage of trading using opposite Woori Financial and First Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Woori 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 Woori Financial Group 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.