Correlation Between Security National and Merchants Bancorp

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Can any of the company-specific risk be diversified away by investing in both Security National and Merchants Bancorp 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 Security National and Merchants Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Security National Financial and Merchants Bancorp, you can compare the effects of market volatilities on Security National and Merchants Bancorp 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 Security National with a short position of Merchants Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Security National and Merchants Bancorp.

Diversification Opportunities for Security National and Merchants Bancorp

-0.51
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Security and Merchants is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Security National Financial and Merchants Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merchants Bancorp and Security National 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 Security National Financial are associated (or correlated) with Merchants Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merchants Bancorp has no effect on the direction of Security National i.e., Security National and Merchants Bancorp go up and down completely randomly.

Pair Corralation between Security National and Merchants Bancorp

Assuming the 90 days horizon Security National Financial is expected to generate 0.57 times more return on investment than Merchants Bancorp. However, Security National Financial is 1.76 times less risky than Merchants Bancorp. It trades about 0.4 of its potential returns per unit of risk. Merchants Bancorp is currently generating about -0.03 per unit of risk. If you would invest  925.00  in Security National Financial on September 5, 2024 and sell it today you would earn a total of  417.00  from holding Security National Financial or generate 45.08% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Security National Financial  vs.  Merchants Bancorp

 Performance 
       Timeline  
Security National 

Risk-Adjusted Performance

29 of 100

 
Weak
 
Strong
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Security National Financial are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental indicators, Security National sustained solid returns over the last few months and may actually be approaching a breakup point.
Merchants Bancorp 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Merchants Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Merchants Bancorp is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Security National and Merchants Bancorp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Security National and Merchants Bancorp

The main advantage of trading using opposite Security National and Merchants Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Security National position performs unexpectedly, Merchants Bancorp 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 Merchants Bancorp will offset losses from the drop in Merchants Bancorp's long position.
The idea behind Security National Financial and Merchants Bancorp 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.
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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 Valuation module to check real value of public entities based on technical and fundamental data.

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