Correlation Between Merchants Bancorp and BRASIL ON

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

Diversification Opportunities for Merchants Bancorp and BRASIL ON

0.71
  Correlation Coefficient

Poor diversification

The 3 months correlation between Merchants and BRASIL is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Merchants Bancorp and BRASIL ON NM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BRASIL ON NM 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 BRASIL ON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BRASIL ON NM has no effect on the direction of Merchants Bancorp i.e., Merchants Bancorp and BRASIL ON go up and down completely randomly.

Pair Corralation between Merchants Bancorp and BRASIL ON

Given the investment horizon of 90 days Merchants Bancorp is expected to under-perform the BRASIL ON. But the stock apears to be less risky and, when comparing its historical volatility, Merchants Bancorp is 1.15 times less risky than BRASIL ON. The stock trades about -0.14 of its potential returns per unit of risk. The BRASIL ON NM is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  3,963  in BRASIL ON NM on July 8, 2022 and sell it today you would earn a total of  23.00  from holding BRASIL ON NM or generate 0.58% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy91.3%
ValuesDaily Returns

Merchants Bancorp  vs.  BRASIL ON NM

 Performance (%) 
       Timeline  
Merchants Bancorp 
Merchants Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Merchants Bancorp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward indicators, Merchants Bancorp may actually be approaching a critical reversion point that can send shares even higher in November 2022.

Merchants Price Channel

BRASIL ON NM 
BRASIL Performance
10 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in BRASIL ON NM are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, BRASIL ON reported solid returns over the last few months and may actually be approaching a breakup point.

BRASIL Price Channel

Merchants Bancorp and BRASIL ON Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merchants Bancorp and BRASIL ON

The main advantage of trading using opposite Merchants Bancorp and BRASIL ON positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merchants Bancorp position performs unexpectedly, BRASIL ON 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 BRASIL ON will offset losses from the drop in BRASIL ON's long position.
Merchants Bancorp vs. Amazon Inc
The idea behind Merchants Bancorp and BRASIL ON NM 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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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 Watchlist Optimization module to optimize watchlists to build efficient portfolio or rebalance existing positions based on mean-variance optimization algorithm.

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