Correlation Between First Merchants and First Guaranty
Can any of the company-specific risk be diversified away by investing in both First Merchants and First Guaranty 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 First Guaranty into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Merchants and First Guaranty Bancshares, you can compare the effects of market volatilities on First Merchants and First Guaranty 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 First Guaranty. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Merchants and First Guaranty.
Diversification Opportunities for First Merchants and First Guaranty
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and First is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding First Merchants and First Guaranty Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Guaranty 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 First Guaranty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Guaranty Bancshares has no effect on the direction of First Merchants i.e., First Merchants and First Guaranty go up and down completely randomly.
Pair Corralation between First Merchants and First Guaranty
Assuming the 90 days horizon First Merchants is expected to generate 1.27 times less return on investment than First Guaranty. But when comparing it to its historical volatility, First Merchants is 2.27 times less risky than First Guaranty. It trades about 0.03 of its potential returns per unit of risk. First Guaranty Bancshares is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 2,085 in First Guaranty Bancshares on August 23, 2024 and sell it today you would earn a total of 129.00 from holding First Guaranty Bancshares or generate 6.19% 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. First Guaranty Bancshares
Performance |
| Timeline |
| First Merchants |
| First Guaranty Bancshares |
First Merchants and First Guaranty Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Merchants and First Guaranty
The main advantage of trading using opposite First Merchants and First Guaranty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Merchants position performs unexpectedly, First Guaranty 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 First Guaranty will offset losses from the drop in First Guaranty'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 |
| First Guaranty vs. CNB Financial | First Guaranty vs. First Citizens BancShares | First Guaranty vs. Texas Capital Bancshares | First Guaranty vs. Merchants 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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