Correlation Between Heritage Financial and Mercantile Bank
Can any of the company-specific risk be diversified away by investing in both Heritage Financial and Mercantile Bank 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 Heritage Financial and Mercantile Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Heritage Financial and Mercantile Bank, you can compare the effects of market volatilities on Heritage Financial and Mercantile Bank 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 Heritage Financial with a short position of Mercantile Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Heritage Financial and Mercantile Bank.
Diversification Opportunities for Heritage Financial and Mercantile Bank
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Heritage and Mercantile is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Heritage Financial and Mercantile Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercantile Bank and Heritage Financial 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 Heritage Financial are associated (or correlated) with Mercantile Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mercantile Bank has no effect on the direction of Heritage Financial i.e., Heritage Financial and Mercantile Bank go up and down completely randomly.
Pair Corralation between Heritage Financial and Mercantile Bank
Given the investment horizon of 90 days Heritage Financial is expected to generate 5.46 times less return on investment than Mercantile Bank. But when comparing it to its historical volatility, Heritage Financial is 1.41 times less risky than Mercantile Bank. It trades about 0.05 of its potential returns per unit of risk. Mercantile Bank is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 4,508 in Mercantile Bank on October 24, 2024 and sell it today you would earn a total of 402.50 from holding Mercantile Bank or generate 8.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 94.74% |
| Values | Daily Returns |
Heritage Financial vs. Mercantile Bank
Performance |
| Timeline |
| Heritage Financial |
| Mercantile Bank |
Heritage Financial and Mercantile Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Heritage Financial and Mercantile Bank
The main advantage of trading using opposite Heritage Financial and Mercantile Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Heritage Financial position performs unexpectedly, Mercantile Bank 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 Mercantile Bank will offset losses from the drop in Mercantile Bank's long position.| Heritage Financial vs. Heritage Commerce Corp | Heritage Financial vs. Horizon Bancorp | Heritage Financial vs. Heartland Financial USA | Heritage Financial vs. Independent Bank |
| Mercantile Bank vs. Great Southern Bancorp | Mercantile Bank vs. First Bancorp | Mercantile Bank vs. MidWestOne Financial Group | Mercantile Bank vs. Lakeland 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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