Correlation Between Alphabet and First Merchants
Can any of the company-specific risk be diversified away by investing in both Alphabet 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 Alphabet and First Merchants into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alphabet Inc Class C and First Merchants, you can compare the effects of market volatilities on Alphabet 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 Alphabet with a short position of First Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alphabet and First Merchants.
Diversification Opportunities for Alphabet and First Merchants
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Alphabet and First is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and First Merchants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Merchants and Alphabet 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 Alphabet Inc Class C 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 Alphabet i.e., Alphabet and First Merchants go up and down completely randomly.
Pair Corralation between Alphabet and First Merchants
Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 1.65 times more return on investment than First Merchants. However, Alphabet is 1.65 times more volatile than First Merchants. It trades about 0.07 of its potential returns per unit of risk. First Merchants is currently generating about 0.03 per unit of risk. If you would invest 9,492 in Alphabet Inc Class C on August 28, 2024 and sell it today you would earn a total of 7,451 from holding Alphabet Inc Class C or generate 78.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Alphabet Inc Class C vs. First Merchants
Performance |
| Timeline |
| Alphabet Class C |
| First Merchants |
Alphabet and First Merchants Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Alphabet and First Merchants
The main advantage of trading using opposite Alphabet and First Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet 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.The idea behind Alphabet Inc Class C and First Merchants pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| First Merchants vs. Fifth Third Bancorp | First Merchants vs. Zions Bancorporation | First Merchants vs. Huntington Bancshares Incorporated | First Merchants vs. Comerica |
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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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