Correlation Between Merck and Direct Line
Can any of the company-specific risk be diversified away by investing in both Merck and Direct Line 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 Merck and Direct Line into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Direct Line Insurance, you can compare the effects of market volatilities on Merck and Direct Line 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 Merck with a short position of Direct Line. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Direct Line.
Diversification Opportunities for Merck and Direct Line
0.16 | Correlation Coefficient |
Average diversification
The 3 months correlation between Merck and Direct is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Direct Line Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direct Line Insurance and Merck 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 Merck Company are associated (or correlated) with Direct Line. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direct Line Insurance has no effect on the direction of Merck i.e., Merck and Direct Line go up and down completely randomly.
Pair Corralation between Merck and Direct Line
Assuming the 90 days trading horizon Merck Company is expected to under-perform the Direct Line. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 2.15 times less risky than Direct Line. The stock trades about -0.02 of its potential returns per unit of risk. The Direct Line Insurance is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 240.00 in Direct Line Insurance on September 4, 2024 and sell it today you would earn a total of 36.00 from holding Direct Line Insurance or generate 15.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Direct Line Insurance
Performance |
| Timeline |
| Merck Company |
| Direct Line Insurance |
Merck and Direct Line Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Direct Line
The main advantage of trading using opposite Merck and Direct Line positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Direct Line 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 Direct Line will offset losses from the drop in Direct Line's long position.| Merck vs. WillScot Mobile Mini | Merck vs. KENEDIX OFFICE INV | Merck vs. WT OFFSHORE | Merck vs. Tower One Wireless |
| Direct Line vs. Allianz SE | Direct Line vs. Superior Plus Corp | Direct Line vs. NMI Holdings | Direct Line vs. Origin Agritech |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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