Correlation Between Truist Financial and First Merchants
Can any of the company-specific risk be diversified away by investing in both Truist Financial 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 Truist Financial and First Merchants into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Truist Financial Corp and First Merchants, you can compare the effects of market volatilities on Truist Financial 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 Truist Financial with a short position of First Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Truist Financial and First Merchants.
Diversification Opportunities for Truist Financial and First Merchants
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Truist and First is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Truist Financial Corp and First Merchants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Merchants and Truist 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 Truist Financial Corp 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 Truist Financial i.e., Truist Financial and First Merchants go up and down completely randomly.
Pair Corralation between Truist Financial and First Merchants
Considering the 90-day investment horizon Truist Financial Corp is expected to generate 2.21 times more return on investment than First Merchants. However, Truist Financial is 2.21 times more volatile than First Merchants. It trades about 0.1 of its potential returns per unit of risk. First Merchants is currently generating about 0.07 per unit of risk. If you would invest 3,043 in Truist Financial Corp on September 14, 2024 and sell it today you would earn a total of 1,534 from holding Truist Financial Corp or generate 50.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Truist Financial Corp vs. First Merchants
Performance |
| Timeline |
| Truist Financial Corp |
| First Merchants |
Truist Financial and First Merchants Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Truist Financial and First Merchants
The main advantage of trading using opposite Truist Financial and First Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Truist Financial 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.| Truist Financial vs. Comerica | Truist Financial vs. Fifth Third Bancorp | Truist Financial vs. Zions Bancorporation | Truist Financial vs. PNC Financial Services |
| First Merchants vs. Comerica | First Merchants vs. Fifth Third Bancorp | First Merchants vs. Zions Bancorporation | First Merchants vs. PNC Financial Services |
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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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