Correlation Between Western Union and Merchants Bancorp
Can any of the company-specific risk be diversified away by investing in both Western Union 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 Western Union and Merchants Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Western Union Co and Merchants Bancorp, you can compare the effects of market volatilities on Western Union 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 Western Union with a short position of Merchants Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Union and Merchants Bancorp.
Diversification Opportunities for Western Union and Merchants Bancorp
0.3 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Western and Merchants is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Western Union Co and Merchants Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merchants Bancorp and Western Union 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 Western Union Co 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 Western Union i.e., Western Union and Merchants Bancorp go up and down completely randomly.
Pair Corralation between Western Union and Merchants Bancorp
Allowing for the 90-day total investment horizon Western Union Co is expected to under-perform the Merchants Bancorp. But the stock apears to be less risky and, when comparing its historical volatility, Western Union Co is 2.97 times less risky than Merchants Bancorp. The stock trades about -0.07 of its potential returns per unit of risk. The Merchants Bancorp is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest 3,600 in Merchants Bancorp on November 3, 2024 and sell it today you would earn a total of 593.00 from holding Merchants Bancorp or generate 16.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.24% |
| Values | Daily Returns |
Western Union Co vs. Merchants Bancorp
Performance |
| Timeline |
| Western Union |
| Merchants Bancorp |
Western Union and Merchants Bancorp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Union and Merchants Bancorp
The main advantage of trading using opposite Western Union and Merchants Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Union 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.| Western Union vs. Navient Corp | Western Union vs. Green Dot | Western Union vs. Orix Corp Ads | Western Union vs. FirstCash |
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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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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