Correlation Between Merchants Bancorp and IShares Core

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

By analyzing existing cross correlation between Merchants Bancorp and iShares Core 5 10, you can compare the effects of market volatilities on Merchants Bancorp and IShares Core 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 IShares Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merchants Bancorp and IShares Core.

Diversification Opportunities for Merchants Bancorp and IShares Core

0.6

Correlation Coefficient

Merchants Bancorp  IShares Core

Poor diversification

The 3 months correlation between Merchants and IShares is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Merchants Bancorp and iShares Core 5 10 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Core 5 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 IShares Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Core 5 has no effect on the direction of Merchants Bancorp i.e., Merchants Bancorp and IShares Core go up and down completely randomly.

Pair Corralation between Merchants Bancorp and IShares Core

Given the investment horizon of 90 days Merchants Bancorp is expected to generate 5.23 times more return on investment than IShares Core. However, Merchants Bancorp is 5.23 times more volatile than iShares Core 5 10. It trades about 0.25 of its potential returns per unit of risk. iShares Core 5 10 is currently generating about 0.0 per unit of risk. If you would invest  4,111  in Merchants Bancorp on February 9, 2024 and sell it today you would earn a total of  593.00  from holding Merchants Bancorp or generate 14.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

Merchants Bancorp  vs.  iShares Core 5 10

Merchants Bancorp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Merchants Bancorp are ranked lower than 8 (%) 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.

iShares Core 5

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Core 5 10 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, IShares Core is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Merchants Bancorp and IShares Core

The main advantage of trading using opposite Merchants Bancorp and IShares Core positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merchants Bancorp position performs unexpectedly, IShares Core 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 IShares Core will offset losses from the drop in IShares Core's long position.

The idea behind Merchants Bancorp and iShares Core 5 10 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.

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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.