Correlation Between First Merchants and Dow Jones
Can any of the company-specific risk be diversified away by investing in both First Merchants and Dow Jones 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 Merchants and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Merchants and Dow Jones Industrial, you can compare the effects of market volatilities on First Merchants and Dow Jones 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 Merchants with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Merchants and Dow Jones.
Diversification Opportunities for First Merchants and Dow Jones
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and Dow is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding First Merchants and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial and First Merchants 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 Merchants are associated (or correlated) with Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of First Merchants i.e., First Merchants and Dow Jones go up and down completely randomly.
Pair Corralation between First Merchants and Dow Jones
Given the investment horizon of 90 days First Merchants is expected to generate 3.06 times more return on investment than Dow Jones. However, First Merchants is 3.06 times more volatile than Dow Jones Industrial. It trades about 0.13 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.17 per unit of risk. If you would invest 3,186 in First Merchants on August 28, 2024 and sell it today you would earn a total of 1,311 from holding First Merchants or generate 41.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Merchants vs. Dow Jones Industrial
Performance |
| Timeline |
First Merchants and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
First Merchants
Pair trading matchups for First Merchants
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with First Merchants and Dow Jones
The main advantage of trading using opposite First Merchants and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Merchants position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.| First Merchants vs. Fifth Third Bancorp | First Merchants vs. Huntington Bancshares Incorporated | First Merchants vs. MT Bank |
| Dow Jones vs. CECO Environmental Corp | Dow Jones vs. Western Acquisition Ventures | Dow Jones vs. Tyson Foods | Dow Jones vs. Inflection Point Acquisition |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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