Correlation Between First Merchants and Pacific Premier
Can any of the company-specific risk be diversified away by investing in both First Merchants and Pacific Premier 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 Pacific Premier into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Merchants and Pacific Premier Bancorp, you can compare the effects of market volatilities on First Merchants and Pacific Premier 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 Pacific Premier. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Merchants and Pacific Premier.
Diversification Opportunities for First Merchants and Pacific Premier
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between First and Pacific is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding First Merchants and Pacific Premier Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific Premier 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 Pacific Premier. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific Premier Bancorp has no effect on the direction of First Merchants i.e., First Merchants and Pacific Premier go up and down completely randomly.
Pair Corralation between First Merchants and Pacific Premier
Given the investment horizon of 90 days First Merchants is expected to generate 0.83 times more return on investment than Pacific Premier. However, First Merchants is 1.2 times less risky than Pacific Premier. It trades about 0.07 of its potential returns per unit of risk. Pacific Premier Bancorp is currently generating about 0.05 per unit of risk. If you would invest 2,699 in First Merchants on September 2, 2024 and sell it today you would earn a total of 1,676 from holding First Merchants or generate 62.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Merchants vs. Pacific Premier Bancorp
Performance |
| Timeline |
| First Merchants |
| Pacific Premier Bancorp |
First Merchants and Pacific Premier Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Merchants and Pacific Premier
The main advantage of trading using opposite First Merchants and Pacific Premier positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Merchants position performs unexpectedly, Pacific Premier 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 Pacific Premier will offset losses from the drop in Pacific Premier's long position.| First Merchants vs. Home Bancorp | First Merchants vs. HomeTrust Bancshares | First Merchants vs. Great Southern Bancorp | First Merchants vs. Finward Bancorp |
| Pacific Premier vs. Community West Bancshares | Pacific Premier vs. Heritage Financial | Pacific Premier vs. First Financial Northwest | Pacific Premier vs. Sierra 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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