Correlation Between Bank of America and Merck
Can any of the company-specific risk be diversified away by investing in both Bank of America 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 Bank of America and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bank of America and Merck Company, you can compare the effects of market volatilities on Bank of America 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 Bank of America with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Merck.
Diversification Opportunities for Bank of America and Merck
0.12 | Correlation Coefficient |
Average diversification
The 3 months correlation between Bank and Merck is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Bank of America 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 Bank of America 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 Bank of America i.e., Bank of America and Merck go up and down completely randomly.
Pair Corralation between Bank of America and Merck
Assuming the 90 days trading horizon Bank of America is expected to generate 0.72 times more return on investment than Merck. However, Bank of America is 1.39 times less risky than Merck. It trades about 0.02 of its potential returns per unit of risk. Merck Company is currently generating about 0.0 per unit of risk. If you would invest 1,696 in Bank of America on October 25, 2024 and sell it today you would earn a total of 116.00 from holding Bank of America or generate 6.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Bank of America vs. Merck Company
Performance |
| Timeline |
| Bank of America |
| Merck Company |
Bank of America and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Merck
The main advantage of trading using opposite Bank of America and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America 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.| Bank of America vs. Bank of America | Bank of America vs. Bank of America | Bank of America vs. JPMorgan Chase Co | Bank of America vs. Wells Fargo |
| Merck vs. Collegium Pharmaceutical | Merck vs. Phibro Animal Health | Merck vs. ANI Pharmaceuticals | Merck vs. Procaps Group SA |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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