Correlation Between First Merchants and Woodlands Financial
Can any of the company-specific risk be diversified away by investing in both First Merchants and Woodlands Financial 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 Woodlands Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Merchants and Woodlands Financial Services, you can compare the effects of market volatilities on First Merchants and Woodlands Financial 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 Woodlands Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Merchants and Woodlands Financial.
Diversification Opportunities for First Merchants and Woodlands Financial
0.1 | Correlation Coefficient |
Average diversification
The 3 months correlation between First and Woodlands is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding First Merchants and Woodlands Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Woodlands Financial 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 Woodlands Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Woodlands Financial has no effect on the direction of First Merchants i.e., First Merchants and Woodlands Financial go up and down completely randomly.
Pair Corralation between First Merchants and Woodlands Financial
Given the investment horizon of 90 days First Merchants is expected to generate 2.13 times more return on investment than Woodlands Financial. However, First Merchants is 2.13 times more volatile than Woodlands Financial Services. It trades about 0.24 of its potential returns per unit of risk. Woodlands Financial Services is currently generating about -0.09 per unit of risk. If you would invest 3,716 in First Merchants on August 29, 2024 and sell it today you would earn a total of 713.00 from holding First Merchants or generate 19.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Merchants vs. Woodlands Financial Services
Performance |
| Timeline |
| First Merchants |
| Woodlands Financial |
First Merchants and Woodlands Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Merchants and Woodlands Financial
The main advantage of trading using opposite First Merchants and Woodlands Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Merchants position performs unexpectedly, Woodlands Financial 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 Woodlands Financial will offset losses from the drop in Woodlands Financial's long position.| First Merchants vs. Fifth Third Bancorp | First Merchants vs. Huntington Bancshares Incorporated | First Merchants vs. MT Bank |
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 Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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