Correlation Between Sector 10 and Merck
Can any of the company-specific risk be diversified away by investing in both Sector 10 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 Sector 10 and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sector 10 and Merck Company, you can compare the effects of market volatilities on Sector 10 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 Sector 10 with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sector 10 and Merck.
Diversification Opportunities for Sector 10 and Merck
Good diversification
The 3 months correlation between Sector and Merck is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Sector 10 and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Sector 10 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 Sector 10 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 Sector 10 i.e., Sector 10 and Merck go up and down completely randomly.
Pair Corralation between Sector 10 and Merck
Given the investment horizon of 90 days Sector 10 is expected to generate 44.25 times more return on investment than Merck. However, Sector 10 is 44.25 times more volatile than Merck Company. It trades about 0.04 of its potential returns per unit of risk. Merck Company is currently generating about 0.08 per unit of risk. If you would invest 1.29 in Sector 10 on January 24, 2024 and sell it today you would lose (1.28) from holding Sector 10 or give up 99.22% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 74.95% |
| Values | Daily Returns |
Sector 10 vs. Merck Company
Performance |
| Timeline |
| Sector 10 |
| Merck Company |
Sector 10 and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sector 10 and Merck
The main advantage of trading using opposite Sector 10 and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sector 10 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.| Sector 10 vs. HealthStream | Sector 10 vs. National Research Corp | Sector 10 vs. HealthEquity | Sector 10 vs. Health Catalyst |
| Merck vs. Silver Spike Investment | Merck vs. Alkermes Plc | Merck vs. Eagle Pharmaceuticals | Merck vs. Evotec SE ADR |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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