Correlation Between Avantis International and Merck

Can any of the company-specific risk be diversified away by investing in both Avantis International 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 Avantis International and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Avantis International Small and Merck Company, you can compare the effects of market volatilities on Avantis International 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 Avantis International with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Avantis International and Merck.

Diversification Opportunities for Avantis International and Merck

0.35

Correlation Coefficient

Avantis International  Merck

Weak diversification

The 3 months correlation between Avantis and Merck is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Avantis International Small and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Avantis International 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 Avantis International Small 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 Avantis International i.e., Avantis International and Merck go up and down completely randomly.

Pair Corralation between Avantis International and Merck

Assuming the 90 days horizon Avantis International Small is expected to under-perform the Merck. But the mutual fund apears to be less risky and, when comparing its historical volatility, Avantis International Small is 1.17 times less risky than Merck. The mutual fund trades about -0.13 of its potential returns per unit of risk. The Merck Company is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  13,175  in Merck Company on January 27, 2024 and sell it today you would lose (103.00) from holding Merck Company or give up 0.78% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Avantis International Small  vs.  Merck Company

Avantis International

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Avantis International Small are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Avantis International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Merck Company

Risk-Adjusted Performance

9 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, Merck may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Avantis International and Merck

The main advantage of trading using opposite Avantis International and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Avantis International 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 Avantis International Small 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.

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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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.