Correlation Between Woori Financial and Mercantile Bank

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

Diversification Opportunities for Woori Financial and Mercantile Bank

-0.25
  Correlation Coefficient

Very good diversification

The 3 months correlation between Woori and Mercantile is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Woori Financial Group and Mercantile Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercantile Bank and Woori 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 Woori Financial Group are associated (or correlated) with Mercantile Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mercantile Bank has no effect on the direction of Woori Financial i.e., Woori Financial and Mercantile Bank go up and down completely randomly.

Pair Corralation between Woori Financial and Mercantile Bank

Allowing for the 90-day total investment horizon Woori Financial is expected to generate 3.93 times less return on investment than Mercantile Bank. But when comparing it to its historical volatility, Woori Financial Group is 3.45 times less risky than Mercantile Bank. It trades about 0.15 of its potential returns per unit of risk. Mercantile Bank is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  4,429  in Mercantile Bank on August 27, 2024 and sell it today you would earn a total of  610.00  from holding Mercantile Bank or generate 13.77% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Woori Financial Group  vs.  Mercantile Bank

 Performance 
       Timeline  
Woori Financial Group 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Woori Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Woori Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.
Mercantile Bank 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Mercantile Bank are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Mercantile Bank displayed solid returns over the last few months and may actually be approaching a breakup point.

Woori Financial and Mercantile Bank Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Woori Financial and Mercantile Bank

The main advantage of trading using opposite Woori Financial and Mercantile Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Woori Financial position performs unexpectedly, Mercantile Bank 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 Mercantile Bank will offset losses from the drop in Mercantile Bank's long position.
The idea behind Woori Financial Group and Mercantile Bank 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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