Correlation Between KNOT Offshore and Merck
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 Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
KNOT Offshore Partners vs. Merck Company
Performance |
Timeline |
KNOT Offshore Partners |
Merck Company |
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.KNOT Offshore vs. USA Compression Partners | KNOT Offshore vs. Dynagas LNG Partners | KNOT Offshore vs. Crossamerica Partners LP | KNOT Offshore vs. Delek Logistics Partners |
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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