Correlation Between Mercantile Bank and KB Financial

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

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

Diversification Opportunities for Mercantile Bank and KB Financial

-0.54

Correlation Coefficient

Mercantile Bank  KB Financial

Excellent diversification

The 3 months correlation between Mercantile and KB Financial is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Mercantile Bank and KB Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KB Financial Group and Mercantile Bank 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 Mercantile Bank are associated (or correlated) with KB Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KB Financial Group has no effect on the direction of Mercantile Bank i.e., Mercantile Bank and KB Financial go up and down completely randomly.

Pair Corralation between Mercantile Bank and KB Financial

Given the investment horizon of 90 days Mercantile Bank is expected to generate 1.04 times more return on investment than KB Financial. However, Mercantile Bank is 1.04 times more volatile than KB Financial Group. It trades about 0.04 of its potential returns per unit of risk. KB Financial Group is currently generating about 0.02 per unit of risk. If you would invest  2,851  in Mercantile Bank on January 26, 2024 and sell it today you would earn a total of  838.00  from holding Mercantile Bank or generate 29.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Mercantile Bank  vs.  KB Financial Group

Mercantile Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mercantile Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

KB Financial Group

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KB Financial Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile fundamental drivers, KB Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mercantile Bank and KB Financial

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

The idea behind Mercantile Bank and KB Financial Group 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.