Correlation Between First Merchants and Bridgewater Bancshares
Can any of the company-specific risk be diversified away by investing in both First Merchants and Bridgewater Bancshares 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 Bridgewater Bancshares into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Merchants and Bridgewater Bancshares Depositary, you can compare the effects of market volatilities on First Merchants and Bridgewater Bancshares 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 Bridgewater Bancshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Merchants and Bridgewater Bancshares.
Diversification Opportunities for First Merchants and Bridgewater Bancshares
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between First and Bridgewater is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding First Merchants and Bridgewater Bancshares Deposit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bridgewater Bancshares 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 Bridgewater Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bridgewater Bancshares has no effect on the direction of First Merchants i.e., First Merchants and Bridgewater Bancshares go up and down completely randomly.
Pair Corralation between First Merchants and Bridgewater Bancshares
Assuming the 90 days horizon First Merchants is expected to generate 0.2 times more return on investment than Bridgewater Bancshares. However, First Merchants is 4.98 times less risky than Bridgewater Bancshares. It trades about -0.01 of its potential returns per unit of risk. Bridgewater Bancshares Depositary is currently generating about -0.01 per unit of risk. If you would invest 2,518 in First Merchants on November 18, 2024 and sell it today you would lose (1.00) from holding First Merchants or give up 0.04% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Merchants vs. Bridgewater Bancshares Deposit
Performance |
| Timeline |
| First Merchants |
| Bridgewater Bancshares |
First Merchants and Bridgewater Bancshares Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Merchants and Bridgewater Bancshares
The main advantage of trading using opposite First Merchants and Bridgewater Bancshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Merchants position performs unexpectedly, Bridgewater Bancshares 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 Bridgewater Bancshares will offset losses from the drop in Bridgewater Bancshares' long position.| First Merchants vs. Home Federal Bancorp | First Merchants vs. Lake Shore Bancorp | First Merchants vs. Old Point Financial | First Merchants vs. Parke Bancorp |
| Bridgewater Bancshares vs. CNB Financial | Bridgewater Bancshares vs. First Guaranty Bancshares | Bridgewater Bancshares vs. Dime Community Bancshares | Bridgewater Bancshares vs. Brighthouse 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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