Correlation Between Merchants Bancorp and Omnia Wellness

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

Diversification Opportunities for Merchants Bancorp and Omnia Wellness

-0.6
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Merchants and Omnia is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Merchants Bancorp and Omnia Wellness in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Omnia Wellness 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 Omnia Wellness. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Omnia Wellness has no effect on the direction of Merchants Bancorp i.e., Merchants Bancorp and Omnia Wellness go up and down completely randomly.

Pair Corralation between Merchants Bancorp and Omnia Wellness

Given the investment horizon of 90 days Merchants Bancorp is expected to generate 138.07 times less return on investment than Omnia Wellness. But when comparing it to its historical volatility, Merchants Bancorp is 14.62 times less risky than Omnia Wellness. It trades about 0.01 of its potential returns per unit of risk. Omnia Wellness is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  40.00  in Omnia Wellness on May 17, 2022 and sell it today you would lose (26.00)  from holding Omnia Wellness or give up 65.0% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy99.04%
ValuesDaily Returns

Merchants Bancorp  vs.  Omnia Wellness

 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 weak forward indicators, Merchants Bancorp disclosed solid returns over the last few months and may actually be approaching a breakup point.

Merchants Price Channel

Omnia Wellness 
Omnia Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Omnia Wellness are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Omnia Wellness reported solid returns over the last few months and may actually be approaching a breakup point.

Omnia Price Channel

Merchants Bancorp and Omnia Wellness Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merchants Bancorp and Omnia Wellness

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

Omnia Wellness

Pair trading matchups for Omnia Wellness

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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