Correlation Between Merchants Bancorp and Exxon

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

Diversification Opportunities for Merchants Bancorp and Exxon

0.55
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Merchants and Exxon is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Merchants Bancorp and Exxon Mobil Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exxon Mobil Corp 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 Exxon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exxon Mobil Corp has no effect on the direction of Merchants Bancorp i.e., Merchants Bancorp and Exxon go up and down completely randomly.

Pair Corralation between Merchants Bancorp and Exxon

Given the investment horizon of 90 days Merchants Bancorp is expected to generate 0.82 times more return on investment than Exxon. However, Merchants Bancorp is 1.21 times less risky than Exxon. It trades about 0.49 of its potential returns per unit of risk. Exxon Mobil Corp is currently generating about 0.08 per unit of risk. If you would invest  2,273  in Merchants Bancorp on May 10, 2022 and sell it today you would earn a total of  454.00  from holding Merchants Bancorp or generate 19.97% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Merchants Bancorp  vs.  Exxon Mobil Corp

 Performance (%) 
       Timeline  
Merchants Bancorp 
Merchants Performance
14 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Merchants Bancorp are ranked lower than 14 (%) 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

Exxon Mobil Corp 
Exxon Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Exxon may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Exxon Price Channel

Merchants Bancorp and Exxon Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merchants Bancorp and Exxon

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

Merchants Bancorp

Pair trading matchups for Merchants Bancorp

The idea behind Merchants Bancorp and Exxon Mobil Corp 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 Global Correlations module to find global opportunities by holding instruments from different markets.

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