Correlation Between International Business and Merck
Can any of the company-specific risk be diversified away by investing in both International Business 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 International Business and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Business Machines and Merck Company, you can compare the effects of market volatilities on International Business 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 International Business with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Business and Merck.
Diversification Opportunities for International Business and Merck
-0.13 | Correlation Coefficient |
Good diversification
The 3 months correlation between International and Merck is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and International Business 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 International Business Machines 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 International Business i.e., International Business and Merck go up and down completely randomly.
Pair Corralation between International Business and Merck
Considering the 90-day investment horizon International Business Machines is expected to generate 1.13 times more return on investment than Merck. However, International Business is 1.13 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 -0.03 per unit of risk. If you would invest 21,125 in International Business Machines on August 29, 2024 and sell it today you would earn a total of 1,380 from holding International Business Machines or generate 6.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Business Machine vs. Merck Company
Performance |
| Timeline |
| International Business |
| Merck Company |
International Business and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Business and Merck
The main advantage of trading using opposite International Business and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Business 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.| International Business vs. Merck Company | International Business vs. Pharvaris BV | International Business vs. Brinker International | International Business vs. Alcoa Corp |
| Merck vs. Pharvaris BV | Merck vs. Brinker International | Merck vs. Alcoa Corp | Merck vs. Direxion Daily FTSE |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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