Correlation Between Bank First and Merchants Bancorp

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

Diversification Opportunities for Bank First and Merchants Bancorp

-0.11
  Correlation Coefficient

Good diversification

The 3 months correlation between Bank First and Merchants is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Bank First National and Merchants Bancorp in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Merchants Bancorp and Bank First 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 Bank First National 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 Bank First i.e., Bank First and Merchants Bancorp go up and down completely randomly.

Pair Corralation between Bank First and Merchants Bancorp

Considering the 90-day investment horizon Bank First National is expected to generate 0.5 times more return on investment than Merchants Bancorp. However, Bank First National is 1.99 times less risky than Merchants Bancorp. It trades about -0.01 of its potential returns per unit of risk. Merchants Bancorp is currently generating about -0.15 per unit of risk. If you would invest  7,180  in Bank First National on February 17, 2022 and sell it today you would lose (26.00)  from holding Bank First National or give up 0.36% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy95.65%
ValuesDaily Returns

Bank First National  vs.  Merchants Bancorp

 Performance (%) 
      Timeline 
Bank First National 
Bank First Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Bank First National are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Bank First is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Bank First Price Channel

Merchants Bancorp 
Merchants Performance
0 of 100
Over the last 90 days Merchants Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's forward indicators remain quite persistent which may send shares a bit higher in June 2022. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Merchants Price Channel

Bank First and Merchants Bancorp Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Bank First and Merchants Bancorp

The main advantage of trading using opposite Bank First and Merchants Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank First 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 Bank First National 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.
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.

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