Correlation Between Independent Bank and First Merchants
Can any of the company-specific risk be diversified away by investing in both Independent Bank 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 Independent Bank and First Merchants into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Independent Bank and First Merchants, you can compare the effects of market volatilities on Independent Bank 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 Independent Bank with a short position of First Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Independent Bank and First Merchants.
Diversification Opportunities for Independent Bank and First Merchants
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Independent and First is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Independent Bank and First Merchants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Merchants and Independent Bank 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 Independent Bank 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 Independent Bank i.e., Independent Bank and First Merchants go up and down completely randomly.
Pair Corralation between Independent Bank and First Merchants
Given the investment horizon of 90 days Independent Bank is expected to generate 1.15 times less return on investment than First Merchants. In addition to that, Independent Bank is 1.0 times more volatile than First Merchants. It trades about 0.2 of its total potential returns per unit of risk. First Merchants is currently generating about 0.24 per unit of volatility. If you would invest 3,716 in First Merchants on August 29, 2024 and sell it today you would earn a total of 713.00 from holding First Merchants or generate 19.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Independent Bank vs. First Merchants
Performance |
| Timeline |
| Independent Bank |
| First Merchants |
Independent Bank and First Merchants Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Independent Bank and First Merchants
The main advantage of trading using opposite Independent Bank and First Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Independent Bank 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.| Independent Bank vs. First Northwest Bancorp | Independent Bank vs. Community West Bancshares | Independent Bank vs. First Financial Northwest | Independent Bank vs. Great Southern Bancorp |
| First Merchants vs. Fifth Third Bancorp | First Merchants vs. Huntington Bancshares Incorporated | First Merchants vs. MT Bank |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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