Correlation Between First Merchants and US Bancorp
Can any of the company-specific risk be diversified away by investing in both First Merchants and US Bancorp 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 US Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Merchants and US Bancorp, you can compare the effects of market volatilities on First Merchants and US Bancorp 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 US Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Merchants and US Bancorp.
Diversification Opportunities for First Merchants and US Bancorp
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between First and USB is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding First Merchants and US Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US 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 US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp has no effect on the direction of First Merchants i.e., First Merchants and US Bancorp go up and down completely randomly.
Pair Corralation between First Merchants and US Bancorp
Given the investment horizon of 90 days First Merchants is expected to generate 1.74 times more return on investment than US Bancorp. However, First Merchants is 1.74 times more volatile than US Bancorp. It trades about 0.22 of its potential returns per unit of risk. US Bancorp is currently generating about 0.23 per unit of risk. If you would invest 3,712 in First Merchants on August 30, 2024 and sell it today you would earn a total of 684.00 from holding First Merchants or generate 18.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Merchants vs. US Bancorp
Performance |
| Timeline |
| First Merchants |
| US Bancorp |
First Merchants and US Bancorp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Merchants and US Bancorp
The main advantage of trading using opposite First Merchants and US Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Merchants position performs unexpectedly, US Bancorp 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 US Bancorp will offset losses from the drop in US Bancorp's long position.| First Merchants vs. Home Bancorp | First Merchants vs. HomeTrust Bancshares | First Merchants vs. Great Southern Bancorp | First Merchants vs. Finward Bancorp |
| US Bancorp vs. PNC Financial Services | US Bancorp vs. KeyCorp | US Bancorp vs. Zions Bancorporation | US Bancorp vs. Fifth Third 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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