Correlation Between Tectonic Financial and Merchants Bancorp
Can any of the company-specific risk be diversified away by investing in both Tectonic Financial 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 Tectonic Financial and Merchants Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tectonic Financial PR and Merchants Bancorp, you can compare the effects of market volatilities on Tectonic Financial 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 Tectonic Financial with a short position of Merchants Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tectonic Financial and Merchants Bancorp.
Diversification Opportunities for Tectonic Financial and Merchants Bancorp
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Tectonic and Merchants is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Tectonic Financial PR and Merchants Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merchants Bancorp and Tectonic 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 Tectonic Financial PR 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 Tectonic Financial i.e., Tectonic Financial and Merchants Bancorp go up and down completely randomly.
Pair Corralation between Tectonic Financial and Merchants Bancorp
Assuming the 90 days horizon Tectonic Financial is expected to generate 1.5 times less return on investment than Merchants Bancorp. But when comparing it to its historical volatility, Tectonic Financial PR is 1.2 times less risky than Merchants Bancorp. It trades about 0.04 of its potential returns per unit of risk. Merchants Bancorp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 1,896 in Merchants Bancorp on August 28, 2024 and sell it today you would earn a total of 645.00 from holding Merchants Bancorp or generate 34.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tectonic Financial PR vs. Merchants Bancorp
Performance |
| Timeline |
| Tectonic Financial |
| Merchants Bancorp |
Tectonic Financial and Merchants Bancorp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tectonic Financial and Merchants Bancorp
The main advantage of trading using opposite Tectonic Financial and Merchants Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tectonic Financial 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.| Tectonic Financial vs. First Guaranty Bancshares | Tectonic Financial vs. First Merchants | Tectonic Financial vs. Associated Banc Corp | Tectonic Financial vs. Absa Group Limited |
| Merchants Bancorp vs. Medallion Bank PR | Merchants Bancorp vs. Northern Trust | Merchants Bancorp vs. Valley National Bancorp | Merchants Bancorp vs. Valley National 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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