Correlation Between Regions Financial and Mercantile Bank

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

Diversification Opportunities for Regions Financial and Mercantile Bank

0.63

Correlation Coefficient

Regions Financial  Mercantile Bank

Poor diversification

The 3 months correlation between Regions and Mercantile is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Regions Financial and Mercantile Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercantile Bank and Regions 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 Regions Financial 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 Regions Financial i.e., Regions Financial and Mercantile Bank go up and down completely randomly.

Pair Corralation between Regions Financial and Mercantile Bank

Assuming the 90 days horizon Regions Financial is expected to generate 0.5 times more return on investment than Mercantile Bank. However, Regions Financial is 2.01 times less risky than Mercantile Bank. It trades about 0.12 of its potential returns per unit of risk. Mercantile Bank is currently generating about 0.05 per unit of risk. If you would invest  1,724  in Regions Financial on May 7, 2025 and sell it today you would earn a total of  102.00  from holding Regions Financial or generate 5.92% return on investment over 90 days.

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

Regions Financial  vs.  Mercantile Bank

Regions Financial

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Regions Financial are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Regions Financial is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Mercantile Bank

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mercantile Bank are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Mercantile Bank is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Regions Financial and Mercantile Bank

The main advantage of trading using opposite Regions Financial and Mercantile Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Regions 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 Regions Financial 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.

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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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.