Correlation Between CullenFrost Bankers and Merchants Bancorp

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

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

Diversification Opportunities for CullenFrost Bankers and Merchants Bancorp

0.4

Correlation Coefficient

CullenFrost Bankers  Merchants Bancorp

Very weak diversification

The 3 months correlation between CullenFrost and Merchants is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding CullenFrost Bankers and Merchants Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merchants Bancorp and CullenFrost Bankers 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 CullenFrost Bankers 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 CullenFrost Bankers i.e., CullenFrost Bankers and Merchants Bancorp go up and down completely randomly.

Pair Corralation between CullenFrost Bankers and Merchants Bancorp

Considering the 90-day investment horizon CullenFrost Bankers is expected to generate 0.59 times more return on investment than Merchants Bancorp. However, CullenFrost Bankers is 1.68 times less risky than Merchants Bancorp. It trades about 0.06 of its potential returns per unit of risk. Merchants Bancorp is currently generating about -0.16 per unit of risk. If you would invest  10,574  in CullenFrost Bankers on January 19, 2024 and sell it today you would earn a total of  155.00  from holding CullenFrost Bankers or generate 1.47% return on investment over 90 days.

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

CullenFrost Bankers  vs.  Merchants Bancorp

CullenFrost Bankers

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CullenFrost Bankers are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, CullenFrost Bankers is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Merchants Bancorp

Risk-Adjusted Performance

0 of 100

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 latest weak performance, the Stock's forward indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with CullenFrost Bankers and Merchants Bancorp

The main advantage of trading using opposite CullenFrost Bankers and Merchants Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CullenFrost Bankers 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 CullenFrost Bankers 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.