Correlation Between Merck and Atlas Copco
Can any of the company-specific risk be diversified away by investing in both Merck and Atlas Copco 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 Atlas Copco into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Atlas Copco AB, you can compare the effects of market volatilities on Merck and Atlas Copco 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 Atlas Copco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Atlas Copco.
Diversification Opportunities for Merck and Atlas Copco
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Merck and Atlas is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Atlas Copco AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Atlas Copco AB 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 Atlas Copco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Atlas Copco AB has no effect on the direction of Merck i.e., Merck and Atlas Copco go up and down completely randomly.
Pair Corralation between Merck and Atlas Copco
Considering the 90-day investment horizon Merck Company is expected to generate 0.88 times more return on investment than Atlas Copco. However, Merck Company is 1.13 times less risky than Atlas Copco. It trades about -0.09 of its potential returns per unit of risk. Atlas Copco AB is currently generating about -0.08 per unit of risk. If you would invest 12,396 in Merck Company on August 29, 2024 and sell it today you would lose (2,084) from holding Merck Company or give up 16.81% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Atlas Copco AB
Performance |
| Timeline |
| Merck Company |
| Atlas Copco AB |
Merck and Atlas Copco Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Atlas Copco
The main advantage of trading using opposite Merck and Atlas Copco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Atlas Copco 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 Atlas Copco will offset losses from the drop in Atlas Copco's long position.| Merck vs. Pharvaris BV | Merck vs. Brinker International | Merck vs. Alcoa Corp | Merck vs. Direxion Daily FTSE |
| Atlas Copco vs. Parker Hannifin | Atlas Copco vs. Eaton PLC | Atlas Copco vs. Dover | Atlas Copco vs. Illinois Tool Works |
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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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