Correlation Between Bank First and Merchants Bancorp

Can any of the company-specific risk be diversified away by investing in both Bank First 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 Bank First and Merchants Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bank First National and Merchants Bancorp, you can compare the effects of market volatilities on Bank First 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 Bank First with a short position of Merchants Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank First and Merchants Bancorp.

Diversification Opportunities for Bank First and Merchants Bancorp

0.39

Correlation Coefficient

Bank First  Merchants Bancorp

Weak diversification

The 3 months correlation between Bank and Merchants is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Bank First National and Merchants Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merchants Bancorp and Bank First 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 Bank First National 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 Bank First i.e., Bank First and Merchants Bancorp go up and down completely randomly.

Pair Corralation between Bank First and Merchants Bancorp

Considering the 90-day investment horizon Bank First National is expected to under-perform the Merchants Bancorp. But the stock apears to be less risky and, when comparing its historical volatility, Bank First National is 1.53 times less risky than Merchants Bancorp. The stock trades about -0.08 of its potential returns per unit of risk. The Merchants Bancorp is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  4,121  in Merchants Bancorp on February 7, 2024 and sell it today you would earn a total of  466.00  from holding Merchants Bancorp or generate 11.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Bank First National  vs.  Merchants Bancorp

Bank First National

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank First National has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Bank First is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Merchants Bancorp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Merchants Bancorp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very weak forward indicators, Merchants Bancorp displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank First and Merchants Bancorp

The main advantage of trading using opposite Bank First and Merchants Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank First 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.

The idea behind Bank First National and Merchants Bancorp 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.

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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.