Correlation Between Aozora Bank and First Merchants
Can any of the company-specific risk be diversified away by investing in both Aozora Bank 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 Aozora Bank and First Merchants into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aozora Bank Ltd and First Merchants, you can compare the effects of market volatilities on Aozora Bank 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 Aozora Bank with a short position of First Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aozora Bank and First Merchants.
Diversification Opportunities for Aozora Bank and First Merchants
-0.15 | Correlation Coefficient |
Good diversification
The 3 months correlation between Aozora and First is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Aozora Bank Ltd and First Merchants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Merchants and Aozora Bank 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 Aozora Bank Ltd 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 Aozora Bank i.e., Aozora Bank and First Merchants go up and down completely randomly.
Pair Corralation between Aozora Bank and First Merchants
Assuming the 90 days horizon Aozora Bank Ltd is expected to under-perform the First Merchants. In addition to that, Aozora Bank is 3.34 times more volatile than First Merchants. It trades about -0.04 of its total potential returns per unit of risk. First Merchants is currently generating about 0.07 per unit of volatility. If you would invest 2,256 in First Merchants on November 9, 2024 and sell it today you would earn a total of 282.00 from holding First Merchants or generate 12.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Aozora Bank Ltd vs. First Merchants
Performance |
| Timeline |
| Aozora Bank |
| First Merchants |
Aozora Bank and First Merchants Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Aozora Bank and First Merchants
The main advantage of trading using opposite Aozora Bank and First Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aozora Bank 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 Aozora Bank Ltd 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.| First Merchants vs. Heartland Financial USA | First Merchants vs. OceanFirst Financial Corp | First Merchants vs. Old National Bancorp | First Merchants vs. Old National Bancorp |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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