Correlation Between First Merchants and German American
Can any of the company-specific risk be diversified away by investing in both First Merchants and German American 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 German American into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Merchants and German American Bancorp, you can compare the effects of market volatilities on First Merchants and German American 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 German American. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Merchants and German American.
Diversification Opportunities for First Merchants and German American
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between First and German is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding First Merchants and German American Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on German American Bancorp 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 German American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of German American Bancorp has no effect on the direction of First Merchants i.e., First Merchants and German American go up and down completely randomly.
Pair Corralation between First Merchants and German American
Given the investment horizon of 90 days First Merchants is expected to generate 0.9 times more return on investment than German American. However, First Merchants is 1.12 times less risky than German American. It trades about 0.0 of its potential returns per unit of risk. German American Bancorp is currently generating about -0.1 per unit of risk. If you would invest 4,036 in First Merchants on October 20, 2024 and sell it today you would lose (9.00) from holding First Merchants or give up 0.22% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Merchants vs. German American Bancorp
Performance |
| Timeline |
| First Merchants |
| German American Bancorp |
First Merchants and German American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Merchants and German American
The main advantage of trading using opposite First Merchants and German American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Merchants position performs unexpectedly, German American 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 German American will offset losses from the drop in German American's long position.| First Merchants vs. Home Bancorp | First Merchants vs. HomeTrust Bancshares | First Merchants vs. Great Southern Bancorp | First Merchants vs. Finward Bancorp |
| German American vs. Lakeland Financial | German American vs. Great Southern Bancorp | German American vs. First Merchants | German American vs. First Financial |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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