Correlation Between First Financial and Mercantile Bank
Can any of the company-specific risk be diversified away by investing in both First Financial and Mercantile Bank 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 First Financial and Mercantile Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Financial Northwest and Mercantile Bank, you can compare the effects of market volatilities on First Financial and Mercantile Bank 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 First Financial with a short position of Mercantile Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Financial and Mercantile Bank.
Diversification Opportunities for First Financial and Mercantile Bank
-0.09 | Correlation Coefficient |
Good diversification
The 3 months correlation between First and Mercantile is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Northwest and Mercantile Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercantile Bank and First 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 First Financial Northwest are associated (or correlated) with Mercantile Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mercantile Bank has no effect on the direction of First Financial i.e., First Financial and Mercantile Bank go up and down completely randomly.
Pair Corralation between First Financial and Mercantile Bank
Given the investment horizon of 90 days First Financial is expected to generate 2.61 times less return on investment than Mercantile Bank. But when comparing it to its historical volatility, First Financial Northwest is 2.71 times less risky than Mercantile Bank. It trades about 0.08 of its potential returns per unit of risk. Mercantile Bank is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 3,869 in Mercantile Bank on September 3, 2024 and sell it today you would earn a total of 1,136 from holding Mercantile Bank or generate 29.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Financial Northwest vs. Mercantile Bank
Performance |
| Timeline |
| First Financial Northwest |
| Mercantile Bank |
First Financial and Mercantile Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Financial and Mercantile Bank
The main advantage of trading using opposite First Financial and Mercantile Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Financial position performs unexpectedly, Mercantile Bank 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 Mercantile Bank will offset losses from the drop in Mercantile Bank's long position.| First Financial vs. JPMorgan Chase Co | First Financial vs. Citigroup | First Financial vs. Wells Fargo | First Financial vs. Toronto Dominion Bank |
| Mercantile Bank vs. JPMorgan Chase Co | Mercantile Bank vs. Citigroup | Mercantile Bank vs. Wells Fargo | Mercantile Bank vs. Toronto Dominion Bank |
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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