Correlation Between Foreign Trade and Merchants Bancorp

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

Diversification Opportunities for Foreign Trade and Merchants Bancorp

0.23
  Correlation Coefficient

Modest diversification

The 3 months correlation between Foreign and Merchants is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Foreign Trade Bank and Merchants Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merchants Bancorp and Foreign Trade 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 Foreign Trade Bank 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 Foreign Trade i.e., Foreign Trade and Merchants Bancorp go up and down completely randomly.

Pair Corralation between Foreign Trade and Merchants Bancorp

Considering the 90-day investment horizon Foreign Trade Bank is expected to generate 0.85 times more return on investment than Merchants Bancorp. However, Foreign Trade Bank is 1.17 times less risky than Merchants Bancorp. It trades about 0.1 of its potential returns per unit of risk. Merchants Bancorp is currently generating about 0.06 per unit of risk. If you would invest  1,333  in Foreign Trade Bank on December 29, 2023 and sell it today you would earn a total of  1,602  from holding Foreign Trade Bank or generate 120.18% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Foreign Trade Bank  vs.  Merchants Bancorp

 Performance 
       Timeline  
Foreign Trade Bank 

Risk-Adjusted Performance

12 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Foreign Trade Bank are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal essential indicators, Foreign Trade showed solid returns over the last few months and may actually be approaching a breakup point.
Merchants Bancorp 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Merchants Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Merchants Bancorp is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Foreign Trade and Merchants Bancorp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Foreign Trade and Merchants Bancorp

The main advantage of trading using opposite Foreign Trade and Merchants Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Foreign Trade 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 Foreign Trade Bank 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.

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