Correlation Between Enterprise Bancorp and Merchants Bancorp

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

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

Diversification Opportunities for Enterprise Bancorp and Merchants Bancorp

0.58

Correlation Coefficient

Enterprise Bancorp  Merchants Bancorp

Very weak diversification

The 3 months correlation between Enterprise and Merchants is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Enterprise Bancorp and Merchants Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merchants Bancorp and Enterprise Bancorp 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 Enterprise Bancorp 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 Enterprise Bancorp i.e., Enterprise Bancorp and Merchants Bancorp go up and down completely randomly.

Pair Corralation between Enterprise Bancorp and Merchants Bancorp

Given the investment horizon of 90 days Enterprise Bancorp is expected to under-perform the Merchants Bancorp. In addition to that, Enterprise Bancorp is 1.09 times more volatile than Merchants Bancorp. It trades about -0.01 of its total potential returns per unit of risk. Merchants Bancorp is currently generating about 0.01 per unit of volatility. If you would invest  4,085  in Merchants Bancorp on January 26, 2024 and sell it today you would earn a total of  8.00  from holding Merchants Bancorp or generate 0.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Enterprise Bancorp  vs.  Merchants Bancorp

Enterprise Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Enterprise Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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 very healthy forward indicators, Merchants Bancorp is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Enterprise Bancorp and Merchants Bancorp

The main advantage of trading using opposite Enterprise Bancorp and Merchants Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Enterprise Bancorp 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 Enterprise Bancorp 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .