Correlation Between Fifth Third and First Merchants
Can any of the company-specific risk be diversified away by investing in both Fifth Third 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 Fifth Third and First Merchants into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fifth Third Bancorp and First Merchants, you can compare the effects of market volatilities on Fifth Third 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 Fifth Third with a short position of First Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fifth Third and First Merchants.
Diversification Opportunities for Fifth Third and First Merchants
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fifth and First is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Fifth Third Bancorp and First Merchants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Merchants and Fifth Third 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 Fifth Third Bancorp 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 Fifth Third i.e., Fifth Third and First Merchants go up and down completely randomly.
Pair Corralation between Fifth Third and First Merchants
Given the investment horizon of 90 days Fifth Third Bancorp is expected to generate 2.78 times more return on investment than First Merchants. However, Fifth Third is 2.78 times more volatile than First Merchants. It trades about 0.2 of its potential returns per unit of risk. First Merchants is currently generating about 0.14 per unit of risk. If you would invest 4,401 in Fifth Third Bancorp on August 30, 2024 and sell it today you would earn a total of 415.00 from holding Fifth Third Bancorp or generate 9.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fifth Third Bancorp vs. First Merchants
Performance |
| Timeline |
| Fifth Third Bancorp |
| First Merchants |
Fifth Third and First Merchants Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fifth Third and First Merchants
The main advantage of trading using opposite Fifth Third and First Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fifth Third 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.| Fifth Third vs. KeyCorp | Fifth Third vs. Regions Financial | Fifth Third vs. Zions Bancorporation | Fifth Third vs. Huntington Bancshares Incorporated |
| First Merchants vs. SVB T Corp | First Merchants vs. First Capital | First Merchants vs. Pioneer Bankcorp | First Merchants vs. Liberty Northwest 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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