Correlation Between First Merchants and CVB Financial
Can any of the company-specific risk be diversified away by investing in both First Merchants and CVB 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 CVB 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 CVB Financial, you can compare the effects of market volatilities on First Merchants and CVB 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 CVB Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Merchants and CVB Financial.
Diversification Opportunities for First Merchants and CVB Financial
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and CVB is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding First Merchants and CVB Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVB 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 CVB Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVB Financial has no effect on the direction of First Merchants i.e., First Merchants and CVB Financial go up and down completely randomly.
Pair Corralation between First Merchants and CVB Financial
Assuming the 90 days horizon First Merchants is expected to generate 0.42 times more return on investment than CVB Financial. However, First Merchants is 2.37 times less risky than CVB Financial. It trades about 0.04 of its potential returns per unit of risk. CVB Financial is currently generating about 0.01 per unit of risk. If you would invest 2,195 in First Merchants on August 31, 2024 and sell it today you would earn a total of 390.00 from holding First Merchants or generate 17.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Merchants vs. CVB Financial
Performance |
| Timeline |
| First Merchants |
| CVB Financial |
First Merchants and CVB Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Merchants and CVB Financial
The main advantage of trading using opposite First Merchants and CVB Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Merchants position performs unexpectedly, CVB 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 CVB Financial will offset losses from the drop in CVB Financial's long position.| First Merchants vs. Heartland Financial USA | First Merchants vs. OceanFirst Financial Corp | First Merchants vs. Old National Bancorp | First Merchants vs. Old National Bancorp |
| CVB Financial vs. First Interstate BancSystem | CVB Financial vs. First Financial Bankshares | CVB Financial vs. Independent Bank Group | CVB Financial vs. Eagle Bancorp Montana |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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