Correlation Between Associated Banc and First Merchants

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Can any of the company-specific risk be diversified away by investing in both Associated Banc 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 Associated Banc and First Merchants into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Associated Banc Corp and First Merchants, you can compare the effects of market volatilities on Associated Banc 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 Associated Banc with a short position of First Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Associated Banc and First Merchants.

Diversification Opportunities for Associated Banc and First Merchants

0.2
  Correlation Coefficient

Modest diversification

The 3 months correlation between Associated and First is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Associated Banc Corp and First Merchants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Merchants and Associated Banc 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 Associated Banc Corp 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 Associated Banc i.e., Associated Banc and First Merchants go up and down completely randomly.

Pair Corralation between Associated Banc and First Merchants

Assuming the 90 days trading horizon Associated Banc Corp is expected to generate 1.44 times more return on investment than First Merchants. However, Associated Banc is 1.44 times more volatile than First Merchants. It trades about 0.05 of its potential returns per unit of risk. First Merchants is currently generating about 0.07 per unit of risk. If you would invest  1,837  in Associated Banc Corp on November 9, 2024 and sell it today you would earn a total of  253.00  from holding Associated Banc Corp or generate 13.77% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Associated Banc Corp  vs.  First Merchants

 Performance 
       Timeline  
Associated Banc Corp 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Associated Banc Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental drivers, Associated Banc is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.
First Merchants 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days First Merchants has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Associated Banc and First Merchants Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Associated Banc and First Merchants

The main advantage of trading using opposite Associated Banc and First Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Associated Banc 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 Associated Banc Corp 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.
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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.

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