Correlation Between Amdocs and Merck
Can any of the company-specific risk be diversified away by investing in both Amdocs and Merck 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 Amdocs and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amdocs and Merck Company, you can compare the effects of market volatilities on Amdocs and Merck 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 Amdocs with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amdocs and Merck.
Diversification Opportunities for Amdocs and Merck
Very good diversification
The 3 months correlation between Amdocs and Merck is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Amdocs and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Amdocs 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 Amdocs are associated (or correlated) with Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Amdocs i.e., Amdocs and Merck go up and down completely randomly.
Pair Corralation between Amdocs and Merck
Considering the 90-day investment horizon Amdocs is expected to under-perform the Merck. But the stock apears to be less risky and, when comparing its historical volatility, Amdocs is 1.01 times less risky than Merck. The stock trades about -0.01 of its potential returns per unit of risk. The Merck Company is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 11,324 in Merck Company on January 26, 2024 and sell it today you would earn a total of 1,376 from holding Merck Company or generate 12.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Amdocs vs. Merck Company
Performance |
| Timeline |
| Amdocs |
| Merck Company |
Amdocs and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amdocs and Merck
The main advantage of trading using opposite Amdocs and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amdocs position performs unexpectedly, Merck 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 Merck will offset losses from the drop in Merck's long position.The idea behind Amdocs and Merck Company 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 the AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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