Correlation Between National Bank and First Merchants
Can any of the company-specific risk be diversified away by investing in both National 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 National 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 National Bank Holdings and First Merchants, you can compare the effects of market volatilities on National 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 National Bank with a short position of First Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Bank and First Merchants.
Diversification Opportunities for National Bank and First Merchants
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between National and First is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding National Bank Holdings and First Merchants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Merchants and National 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 National Bank Holdings 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 National Bank i.e., National Bank and First Merchants go up and down completely randomly.
Pair Corralation between National Bank and First Merchants
Given the investment horizon of 90 days National Bank is expected to generate 2.67 times less return on investment than First Merchants. But when comparing it to its historical volatility, National Bank Holdings is 1.08 times less risky than First Merchants. It trades about 0.11 of its potential returns per unit of risk. First Merchants is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 3,600 in First Merchants on August 25, 2024 and sell it today you would earn a total of 805.00 from holding First Merchants or generate 22.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
National Bank Holdings vs. First Merchants
Performance |
| Timeline |
| National Bank Holdings |
| First Merchants |
National Bank and First Merchants Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with National Bank and First Merchants
The main advantage of trading using opposite National Bank and First Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National 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.| National Bank vs. First Community | National Bank vs. Community West Bancshares | National Bank vs. First Financial Northwest | National Bank vs. First Northwest Bancorp |
| 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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