Correlation Between Grand River and First Merchants
Can any of the company-specific risk be diversified away by investing in both Grand River and First Merchants 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 Grand River and First Merchants into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Grand River Commerce and First Merchants, you can compare the effects of market volatilities on Grand River and First Merchants 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 Grand River with a short position of First Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Grand River and First Merchants.
Diversification Opportunities for Grand River and First Merchants
-0.58 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Grand and First is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Grand River Commerce and First Merchants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Merchants and Grand River 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 Grand River Commerce are associated (or correlated) with First Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Merchants has no effect on the direction of Grand River i.e., Grand River and First Merchants go up and down completely randomly.
Pair Corralation between Grand River and First Merchants
Given the investment horizon of 90 days Grand River is expected to generate 5.92 times less return on investment than First Merchants. But when comparing it to its historical volatility, Grand River Commerce is 1.02 times less risky than First Merchants. It trades about 0.04 of its potential returns per unit of risk. First Merchants is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 3,705 in First Merchants on September 1, 2024 and sell it today you would earn a total of 670.00 from holding First Merchants or generate 18.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Grand River Commerce vs. First Merchants
Performance |
| Timeline |
| Grand River Commerce |
| First Merchants |
Grand River and First Merchants Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Grand River and First Merchants
The main advantage of trading using opposite Grand River and First Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Grand River position performs unexpectedly, First Merchants 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 Merchants will offset losses from the drop in First Merchants' long position.| Grand River vs. FS Bancorp | Grand River vs. Eastern Michigan Financial | Grand River vs. Bank of Botetourt | Grand River vs. FNB Inc |
| First Merchants vs. Home Bancorp | First Merchants vs. HomeTrust Bancshares | First Merchants vs. Great Southern Bancorp | First Merchants vs. Finward 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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