Correlation Between Merchants Bancorp and Allena Pharmaceuticals

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

Diversification Opportunities for Merchants Bancorp and Allena Pharmaceuticals

-0.29
  Correlation Coefficient

Very good diversification

The 3 months correlation between Merchants and Allena is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Merchants Bancorp and Allena Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allena Pharmaceuticals and Merchants 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 Merchants Bancorp are associated (or correlated) with Allena Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allena Pharmaceuticals has no effect on the direction of Merchants Bancorp i.e., Merchants Bancorp and Allena Pharmaceuticals go up and down completely randomly.

Pair Corralation between Merchants Bancorp and Allena Pharmaceuticals

Given the investment horizon of 90 days Merchants Bancorp is expected to generate 4.65 times less return on investment than Allena Pharmaceuticals. But when comparing it to its historical volatility, Merchants Bancorp is 10.22 times less risky than Allena Pharmaceuticals. It trades about 0.17 of its potential returns per unit of risk. Allena Pharmaceuticals is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  11.00  in Allena Pharmaceuticals on May 14, 2022 and sell it today you would earn a total of  2.00  from holding Allena Pharmaceuticals or generate 18.18% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy98.39%
ValuesDaily Returns

Merchants Bancorp  vs.  Allena Pharmaceuticals

 Performance (%) 
       Timeline  
Merchants Bancorp 
Merchants Performance
13 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Merchants Bancorp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady forward indicators, Merchants Bancorp disclosed solid returns over the last few months and may actually be approaching a breakup point.

Merchants Price Channel

Allena Pharmaceuticals 
Allena Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Allena Pharmaceuticals are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Allena Pharmaceuticals sustained solid returns over the last few months and may actually be approaching a breakup point.

Allena Price Channel

Merchants Bancorp and Allena Pharmaceuticals Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merchants Bancorp and Allena Pharmaceuticals

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

Merchants Bancorp

Pair trading matchups for Merchants Bancorp

The idea behind Merchants Bancorp and Allena Pharmaceuticals 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.

Allena Pharmaceuticals

Pair trading matchups for Allena Pharmaceuticals

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.

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