Correlation Between COLUMBIA LIMITED and Merck

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

Diversification Opportunities for COLUMBIA LIMITED and Merck

0.38
  Correlation Coefficient

Weak diversification

The 3 months correlation between COLUMBIA and Merck is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding COLUMBIA LIMITED DURATION and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and COLUMBIA LIMITED 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 COLUMBIA LIMITED DURATION 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 COLUMBIA LIMITED i.e., COLUMBIA LIMITED and Merck go up and down completely randomly.

Pair Corralation between COLUMBIA LIMITED and Merck

Assuming the 90 days horizon COLUMBIA LIMITED is expected to generate 5.75 times less return on investment than Merck. But when comparing it to its historical volatility, COLUMBIA LIMITED DURATION is 6.34 times less risky than Merck. It trades about 0.25 of its potential returns per unit of risk. Merck Company is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  10,189  in Merck Company on September 11, 2022 and sell it today you would earn a total of  689.00  from holding Merck Company or generate 6.76% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

COLUMBIA LIMITED DURATION  vs.  Merck Company

 Performance (%) 
       Timeline  
COLUMBIA LIMITED DURATION 
COLUMBIA Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in COLUMBIA LIMITED DURATION are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, COLUMBIA LIMITED is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

COLUMBIA Price Channel

Merck Company 
Merck Performance
19 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Merck demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Merck Price Channel

COLUMBIA LIMITED and Merck Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with COLUMBIA LIMITED and Merck

The main advantage of trading using opposite COLUMBIA LIMITED and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if COLUMBIA LIMITED 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.
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The idea behind COLUMBIA LIMITED DURATION 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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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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