Correlation Between Merck and Avanti Energy
Can any of the company-specific risk be diversified away by investing in both Merck and Avanti Energy 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 Avanti Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Avanti Energy, you can compare the effects of market volatilities on Merck and Avanti Energy 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 Avanti Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Avanti Energy.
Diversification Opportunities for Merck and Avanti Energy
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Merck and Avanti is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Avanti Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avanti Energy 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 Avanti Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avanti Energy has no effect on the direction of Merck i.e., Merck and Avanti Energy go up and down completely randomly.
Pair Corralation between Merck and Avanti Energy
Considering the 90-day investment horizon Merck Company is expected to generate 0.23 times more return on investment than Avanti Energy. However, Merck Company is 4.27 times less risky than Avanti Energy. It trades about 0.0 of its potential returns per unit of risk. Avanti Energy is currently generating about -0.04 per unit of risk. If you would invest 10,559 in Merck Company on September 2, 2024 and sell it today you would lose (395.00) from holding Merck Company or give up 3.74% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Avanti Energy
Performance |
| Timeline |
| Merck Company |
| Avanti Energy |
Merck and Avanti Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Avanti Energy
The main advantage of trading using opposite Merck and Avanti Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Avanti Energy 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 Avanti Energy will offset losses from the drop in Avanti Energy's long position.The idea behind Merck Company and Avanti Energy 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.| Avanti Energy vs. Desert Mountain Energy | Avanti Energy vs. Avanti Energy | Avanti Energy vs. Royal Helium | Avanti Energy vs. Total Helium |
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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
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