Correlation Between WisdomTree and Merchants Bancorp

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

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

Diversification Opportunities for WisdomTree and Merchants Bancorp

-0.04

Correlation Coefficient

WisdomTree  Merchants Bancorp

Good diversification

The 3 months correlation between WisdomTree and Merchants is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree and Merchants Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merchants Bancorp and WisdomTree 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 WisdomTree 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 WisdomTree i.e., WisdomTree and Merchants Bancorp go up and down completely randomly.

Pair Corralation between WisdomTree and Merchants Bancorp

Allowing for the 90-day total investment horizon WisdomTree is expected to under-perform the Merchants Bancorp. But the stock apears to be less risky and, when comparing its historical volatility, WisdomTree is 1.21 times less risky than Merchants Bancorp. The stock trades about -0.13 of its potential returns per unit of risk. The Merchants Bancorp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,632  in Merchants Bancorp on December 30, 2024 and sell it today you would earn a total of  72.00  from holding Merchants Bancorp or generate 1.98% return on investment over 90 days.

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

WisdomTree  vs.  Merchants Bancorp

WisdomTree

Risk-Adjusted Performance

Very Weak

Over the last 90 days WisdomTree has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Merchants Bancorp

Risk-Adjusted Performance

Weak

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

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

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 Anywhere module to track or share privately all of your investments from the convenience of any device.