Correlation Between American Express and Merchants Bancorp

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Can any of the company-specific risk be diversified away by investing in both American Express and Merchants Bancorp 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 American Express and Merchants Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Express and Merchants Bancorp, you can compare the effects of market volatilities on American Express and Merchants Bancorp 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 American Express with a short position of Merchants Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Express and Merchants Bancorp.

Diversification Opportunities for American Express and Merchants Bancorp

0.73
  Correlation Coefficient

Poor diversification

The 3 months correlation between American and Merchants is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Merchants Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merchants Bancorp and American Express 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 American Express are associated (or correlated) with Merchants Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merchants Bancorp has no effect on the direction of American Express i.e., American Express and Merchants Bancorp go up and down completely randomly.

Pair Corralation between American Express and Merchants Bancorp

Considering the 90-day investment horizon American Express is expected to generate 1.64 times less return on investment than Merchants Bancorp. In addition to that, American Express is 1.03 times more volatile than Merchants Bancorp. It trades about 0.21 of its total potential returns per unit of risk. Merchants Bancorp is currently generating about 0.36 per unit of volatility. If you would invest  2,288  in Merchants Bancorp on May 20, 2022 and sell it today you would earn a total of  564.00  from holding Merchants Bancorp or generate 24.65% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

American Express  vs.  Merchants Bancorp

 Performance (%) 
       Timeline  
American Express 
American Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, American Express may actually be approaching a critical reversion point that can send shares even higher in September 2022.

American Price Channel

Merchants Bancorp 
Merchants Performance
14 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Merchants Bancorp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal forward indicators, Merchants Bancorp disclosed solid returns over the last few months and may actually be approaching a breakup point.

Merchants Price Channel

American Express and Merchants Bancorp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with American Express and Merchants Bancorp

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

Merchants Bancorp

Pair trading matchups for Merchants Bancorp

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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.

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