Correlation Between KNOT Offshore and Merck

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

Diversification Opportunities for KNOT Offshore and Merck

0.84
  Correlation Coefficient

Very poor diversification

The 3 months correlation between KNOT and Merck is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding KNOT Offshore Partners and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and KNOT Offshore 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 KNOT Offshore Partners 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 KNOT Offshore i.e., KNOT Offshore and Merck go up and down completely randomly.

Pair Corralation between KNOT Offshore and Merck

Given the investment horizon of 90 days KNOT Offshore Partners is expected to generate 1.39 times more return on investment than Merck. However, KNOT Offshore is 1.39 times more volatile than Merck Company. It trades about -0.19 of its potential returns per unit of risk. Merck Company is currently generating about -0.32 per unit of risk. If you would invest  644.00  in KNOT Offshore Partners on August 9, 2024 and sell it today you would lose (39.00) from holding KNOT Offshore Partners or give up 6.06% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

KNOT Offshore Partners  vs.  Merck Company

 Performance 
       Timeline  
KNOT Offshore Partners 

Risk-Adjusted Performance

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Weak
 
Strong
Very Weak
Over the last 90 days KNOT Offshore Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unsteady performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.
Merck Company 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

KNOT Offshore and Merck Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with KNOT Offshore and Merck

The main advantage of trading using opposite KNOT Offshore and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KNOT Offshore 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 KNOT Offshore Partners 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.

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