diversifiable risk of combining ATT and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ATT Inc and Merck Company, you can compare the effects of market volatilities on ATT 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 ATT with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of ATT and Merck.
Diversification Opportunities for ATT and Merck
Pair Corralation between ATT and Merck
Taking into account the 90-day investment horizon ATT Inc is expected to under-perform the Merck. In addition to that, ATT is 1.6 times more volatile than Merck Company. It trades about -0.02 of its total potential returns per unit of risk. Merck Company is currently generating about 0.27 per unit of volatility. If you would invest 11,477 in Merck Company on December 4, 2023 and sell it today you would earn a total of 1,219 from holding Merck Company or generate 10.62% return on investment over 90 days.
ATT Inc vs. Merck Company
Pair Trading with ATT and MerckThe main advantage of trading using opposite ATT and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ATT 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 ATT Inc 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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