Correlation Between Wells Fargo and Mercantile Bank
Can any of the company-specific risk be diversified away by investing in both Wells Fargo 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 Wells Fargo and Mercantile Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wells Fargo and Mercantile Bank, you can compare the effects of market volatilities on Wells Fargo 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 Wells Fargo with a short position of Mercantile Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wells Fargo and Mercantile Bank.
Diversification Opportunities for Wells Fargo and Mercantile Bank
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Wells and Mercantile is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo and Mercantile Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercantile Bank and Wells Fargo 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 Wells Fargo 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 Wells Fargo i.e., Wells Fargo and Mercantile Bank go up and down completely randomly.
Pair Corralation between Wells Fargo and Mercantile Bank
Considering the 90-day investment horizon Wells Fargo is expected to generate 0.82 times more return on investment than Mercantile Bank. However, Wells Fargo is 1.23 times less risky than Mercantile Bank. It trades about 0.19 of its potential returns per unit of risk. Mercantile Bank is currently generating about 0.07 per unit of risk. If you would invest 5,804 in Wells Fargo on September 3, 2024 and sell it today you would earn a total of 1,813 from holding Wells Fargo or generate 31.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wells Fargo vs. Mercantile Bank
Performance |
| Timeline |
| Wells Fargo |
| Mercantile Bank |
Wells Fargo and Mercantile Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wells Fargo and Mercantile Bank
The main advantage of trading using opposite Wells Fargo and Mercantile Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wells Fargo 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.| Wells Fargo vs. Partner Communications | Wells Fargo vs. Merck Company | Wells Fargo vs. Western Midstream Partners | Wells Fargo vs. Edgewise Therapeutics |
| Mercantile Bank vs. JPMorgan Chase Co | Mercantile Bank vs. Citigroup | Mercantile Bank vs. Wells Fargo | Mercantile Bank vs. Toronto Dominion Bank |
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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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