Correlation Between Merit Group and Vodafone Group
Can any of the company-specific risk be diversified away by investing in both Merit Group and Vodafone Group 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 Merit Group and Vodafone Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merit Group PLC and Vodafone Group PLC, you can compare the effects of market volatilities on Merit Group and Vodafone Group 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 Merit Group with a short position of Vodafone Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merit Group and Vodafone Group.
Diversification Opportunities for Merit Group and Vodafone Group
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Merit and Vodafone is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Merit Group PLC and Vodafone Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vodafone Group PLC and Merit Group 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 Merit Group PLC are associated (or correlated) with Vodafone Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vodafone Group PLC has no effect on the direction of Merit Group i.e., Merit Group and Vodafone Group go up and down completely randomly.
Pair Corralation between Merit Group and Vodafone Group
Assuming the 90 days trading horizon Merit Group PLC is expected to under-perform the Vodafone Group. But the stock apears to be less risky and, when comparing its historical volatility, Merit Group PLC is 1.09 times less risky than Vodafone Group. The stock trades about -0.34 of its potential returns per unit of risk. The Vodafone Group PLC is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest 7,178 in Vodafone Group PLC on August 30, 2024 and sell it today you would lose (42.00) from holding Vodafone Group PLC or give up 0.59% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merit Group PLC vs. Vodafone Group PLC
Performance |
| Timeline |
| Merit Group PLC |
| Vodafone Group PLC |
Merit Group and Vodafone Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merit Group and Vodafone Group
The main advantage of trading using opposite Merit Group and Vodafone Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merit Group position performs unexpectedly, Vodafone Group 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 Vodafone Group will offset losses from the drop in Vodafone Group's long position.| Merit Group vs. Raytheon Technologies Corp | Merit Group vs. Ashtead Technology Holdings | Merit Group vs. Science in Sport | Merit Group vs. Uber Technologies |
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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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