Correlation Between Finward Bancorp and First Merchants

Can any of the company-specific risk be diversified away by investing in both Finward 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 Finward 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 Finward Bancorp and First Merchants, you can compare the effects of market volatilities on Finward 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 Finward Bancorp with a short position of First Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Finward Bancorp and First Merchants.

Diversification Opportunities for Finward Bancorp and First Merchants

-0.82

Correlation Coefficient

Finward Bancorp  First Merchants

Pay attention - limited upside

The 3 months correlation between Finward and First is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Finward Bancorp and First Merchants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Merchants and Finward 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 Finward 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 Finward Bancorp i.e., Finward Bancorp and First Merchants go up and down completely randomly.

Pair Corralation between Finward Bancorp and First Merchants

Given the investment horizon of 90 days Finward Bancorp is expected to generate 1.71 times less return on investment than First Merchants. But when comparing it to its historical volatility, Finward Bancorp is 1.09 times less risky than First Merchants. It trades about 0.03 of its potential returns per unit of risk. First Merchants is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,351  in First Merchants on February 2, 2025 and sell it today you would earn a total of  1,352  from holding First Merchants or generate 57.51% return on investment over 90 days.

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

Finward Bancorp  vs.  First Merchants

Finward Bancorp

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Finward Bancorp are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Finward Bancorp exhibited solid returns over the last few months and may actually be approaching a breakup point.

First Merchants

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Merchants has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in June 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Finward Bancorp and First Merchants

The main advantage of trading using opposite Finward Bancorp and First Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Finward 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 Finward 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.

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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.