Correlation Between Merchants Bancorp and Banco De

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

Diversification Opportunities for Merchants Bancorp and Banco De

0.04
  Correlation Coefficient

Significant diversification

The 3 months correlation between Merchants and Banco is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Merchants Bancorp and Banco De Chile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco De Chile and Merchants 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 Merchants Bancorp are associated (or correlated) with Banco De. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco De Chile has no effect on the direction of Merchants Bancorp i.e., Merchants Bancorp and Banco De go up and down completely randomly.

Pair Corralation between Merchants Bancorp and Banco De

Given the investment horizon of 90 days Merchants Bancorp is expected to generate 3.7 times less return on investment than Banco De. In addition to that, Merchants Bancorp is 1.63 times more volatile than Banco De Chile. It trades about 0.03 of its total potential returns per unit of risk. Banco De Chile is currently generating about 0.18 per unit of volatility. If you would invest  2,074  in Banco De Chile on December 29, 2023 and sell it today you would earn a total of  116.00  from holding Banco De Chile or generate 5.59% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Merchants Bancorp  vs.  Banco De Chile

 Performance 
       Timeline  
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.
Banco De Chile 

Risk-Adjusted Performance

2 of 100

 
Low
 
High
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Banco De Chile are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental indicators, Banco De is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Merchants Bancorp and Banco De Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merchants Bancorp and Banco De

The main advantage of trading using opposite Merchants Bancorp and Banco De positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merchants Bancorp position performs unexpectedly, Banco De 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 Banco De will offset losses from the drop in Banco De's long position.
The idea behind Merchants Bancorp and Banco De Chile 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.

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