Correlation Between First Bancorp and First Merchants

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

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

Diversification Opportunities for First Bancorp and First Merchants

0.87

Correlation Coefficient

First Bancorp  First Merchants

Very poor diversification

The 3 months correlation between First and First is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding First Bancorp and First Merchants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Merchants and First 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 First Bancorp are associated (or correlated) with First Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Merchants has no effect on the direction of First Bancorp i.e., First Bancorp and First Merchants go up and down completely randomly.

Pair Corralation between First Bancorp and First Merchants

Given the investment horizon of 90 days First Bancorp is expected to generate 1.09 times more return on investment than First Merchants. However, First Bancorp is 1.09 times more volatile than First Merchants. It trades about 0.06 of its potential returns per unit of risk. First Merchants is currently generating about 0.01 per unit of risk. If you would invest  2,446  in First Bancorp on May 18, 2025 and sell it today you would earn a total of  137.00  from holding First Bancorp or generate 5.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

First Bancorp  vs.  First Merchants

First Bancorp

Risk-Adjusted Performance

Soft

Compared to the overall equity markets, risk-adjusted returns on investments in First Bancorp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady essential indicators, First Bancorp may actually be approaching a critical reversion point that can send shares even higher in September 2025.

First Merchants

Risk-Adjusted Performance

Weakest

Over the last 90 days First Merchants has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, First Merchants is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with First Bancorp and First Merchants

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

The idea behind First Bancorp and First Merchants 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.