Correlation Between MidWestOne Financial and Mercantile Bank
Can any of the company-specific risk be diversified away by investing in both MidWestOne Financial and Mercantile Bank 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 MidWestOne Financial and Mercantile Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MidWestOne Financial Group and Mercantile Bank, you can compare the effects of market volatilities on MidWestOne Financial and Mercantile Bank 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 MidWestOne Financial with a short position of Mercantile Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of MidWestOne Financial and Mercantile Bank.
Diversification Opportunities for MidWestOne Financial and Mercantile Bank
0.33 | Correlation Coefficient |
Weak diversification
The 3 months correlation between MidWestOne and Mercantile is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding MidWestOne Financial Group and Mercantile Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercantile Bank and MidWestOne Financial 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 MidWestOne Financial Group are associated (or correlated) with Mercantile Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mercantile Bank has no effect on the direction of MidWestOne Financial i.e., MidWestOne Financial and Mercantile Bank go up and down completely randomly.
Pair Corralation between MidWestOne Financial and Mercantile Bank
Given the investment horizon of 90 days MidWestOne Financial Group is expected to under-perform the Mercantile Bank. In addition to that, MidWestOne Financial is 1.27 times more volatile than Mercantile Bank. It trades about -0.05 of its total potential returns per unit of risk. Mercantile Bank is currently generating about 0.1 per unit of volatility. If you would invest 3,680 in Mercantile Bank on February 8, 2024 and sell it today you would earn a total of 270.00 from holding Mercantile Bank or generate 7.34% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
MidWestOne Financial Group vs. Mercantile Bank
Performance |
Timeline |
MidWestOne Financial |
Mercantile Bank |
MidWestOne Financial and Mercantile Bank Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with MidWestOne Financial and Mercantile Bank
The main advantage of trading using opposite MidWestOne Financial and Mercantile Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MidWestOne Financial position performs unexpectedly, Mercantile Bank 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 Mercantile Bank will offset losses from the drop in Mercantile Bank's long position.The idea behind MidWestOne Financial Group and Mercantile Bank 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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