Correlation Between Mercantile Bank and Home Federal
Can any of the company-specific risk be diversified away by investing in both Mercantile Bank and Home Federal 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 Mercantile Bank and Home Federal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Mercantile Bank and Home Federal Bancorp, you can compare the effects of market volatilities on Mercantile Bank and Home Federal 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 Mercantile Bank with a short position of Home Federal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mercantile Bank and Home Federal.
Diversification Opportunities for Mercantile Bank and Home Federal
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Mercantile and Home is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Mercantile Bank and Home Federal Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Federal Bancorp and Mercantile 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 Mercantile Bank are associated (or correlated) with Home Federal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Federal Bancorp has no effect on the direction of Mercantile Bank i.e., Mercantile Bank and Home Federal go up and down completely randomly.
Pair Corralation between Mercantile Bank and Home Federal
Given the investment horizon of 90 days Mercantile Bank is expected to generate 32.21 times less return on investment than Home Federal. But when comparing it to its historical volatility, Mercantile Bank is 32.07 times less risky than Home Federal. It trades about 0.08 of its potential returns per unit of risk. Home Federal Bancorp is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,135 in Home Federal Bancorp on September 3, 2024 and sell it today you would earn a total of 101.00 from holding Home Federal Bancorp or generate 8.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 91.78% |
| Values | Daily Returns |
Mercantile Bank vs. Home Federal Bancorp
Performance |
| Timeline |
| Mercantile Bank |
| Home Federal Bancorp |
Mercantile Bank and Home Federal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Mercantile Bank and Home Federal
The main advantage of trading using opposite Mercantile Bank and Home Federal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mercantile Bank position performs unexpectedly, Home Federal 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 Home Federal will offset losses from the drop in Home Federal's long position.| Mercantile Bank vs. JPMorgan Chase Co | Mercantile Bank vs. Citigroup | Mercantile Bank vs. Wells Fargo | Mercantile Bank vs. Toronto Dominion Bank |
| Home Federal vs. JPMorgan Chase Co | Home Federal vs. Citigroup | Home Federal vs. Wells Fargo | Home Federal vs. Toronto Dominion 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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