Correlation Between Merchants Bancorp and BankUnited

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

Diversification Opportunities for Merchants Bancorp and BankUnited

0.89
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Merchants and BankUnited is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Merchants Bancorp and BankUnited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BankUnited 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 BankUnited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BankUnited has no effect on the direction of Merchants Bancorp i.e., Merchants Bancorp and BankUnited go up and down completely randomly.

Pair Corralation between Merchants Bancorp and BankUnited

Given the investment horizon of 90 days Merchants Bancorp is expected to generate 0.86 times more return on investment than BankUnited. However, Merchants Bancorp is 1.17 times less risky than BankUnited. It trades about 0.08 of its potential returns per unit of risk. BankUnited is currently generating about 0.07 per unit of risk. If you would invest  1,105  in Merchants Bancorp on April 6, 2022 and sell it today you would earn a total of  1,232  from holding Merchants Bancorp or generate 111.49% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Merchants Bancorp  vs.  BankUnited

 Performance (%) 
      Timeline 
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 latest weak performance, the Stock's forward indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Structure and Payout Changes

Forward Annual Dividend Yield
0.0121
Payout Ratio
0.0467
Last Split Factor
3:2
Forward Annual Dividend Rate
0.28
Dividend Date
2022-07-01
Ex Dividend Date
2022-06-14
Last Split Date
2022-01-18

Merchants Price Channel

BankUnited 
BankUnited Performance
0 of 100
Over the last 90 days BankUnited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's forward-looking signals remain comparatively stable which may send shares a bit higher in August 2022. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Structure and Payout Changes

Forward Annual Dividend Yield
0.0276
Payout Ratio
0.25
Forward Annual Dividend Rate
1.0
Dividend Date
2022-07-29
Ex Dividend Date
2022-07-13

BankUnited Price Channel

Merchants Bancorp and BankUnited Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Merchants Bancorp and BankUnited

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

Merchants Bancorp

Pair trading matchups for Merchants Bancorp

Ultrashort MSCI vs. Merchants Bancorp
Kimball Electrnc vs. Merchants Bancorp
Ollies Bargain vs. Merchants Bancorp
Citigroup vs. Merchants Bancorp
Dupont Denemours vs. Merchants Bancorp
China Life vs. Merchants Bancorp
Bidvest vs. Merchants Bancorp
Definitive Healthcare vs. Merchants Bancorp
Microsoft Corp vs. Merchants Bancorp
Otp Bank vs. Merchants Bancorp
Twitter vs. Merchants Bancorp
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Merchants Bancorp as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Merchants Bancorp's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Merchants Bancorp's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Merchants Bancorp.
The idea behind Merchants Bancorp and BankUnited 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.

BankUnited

Pair trading matchups for BankUnited

Cansino Biologics vs. BankUnited
Bidvest vs. BankUnited
Walker Dunlop vs. BankUnited
Vmware vs. BankUnited
Otp Bank vs. BankUnited
Citigroup vs. BankUnited
Microsoft Corp vs. BankUnited
China Life vs. BankUnited
Chemocentryx vs. BankUnited
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against BankUnited as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. BankUnited's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, BankUnited's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to BankUnited.
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.

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