Correlation Between Merck and Ab Select
Can any of the company-specific risk be diversified away by investing in both Merck and Ab Select 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 Ab Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Ab Select Equity, you can compare the effects of market volatilities on Merck and Ab Select 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 Ab Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Ab Select.
Diversification Opportunities for Merck and Ab Select
Pay attention - limited upside
The 3 months correlation between Merck and AUUIX is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Ab Select Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab Select Equity 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 Ab Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab Select Equity has no effect on the direction of Merck i.e., Merck and Ab Select go up and down completely randomly.
Pair Corralation between Merck and Ab Select
Considering the 90-day investment horizon Merck Company is expected to under-perform the Ab Select. In addition to that, Merck is 1.5 times more volatile than Ab Select Equity. It trades about 0.0 of its total potential returns per unit of risk. Ab Select Equity is currently generating about 0.1 per unit of volatility. If you would invest 1,602 in Ab Select Equity on August 24, 2024 and sell it today you would earn a total of 761.00 from holding Ab Select Equity or generate 47.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Ab Select Equity
Performance |
| Timeline |
| Merck Company |
| Ab Select Equity |
Merck and Ab Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Ab Select
The main advantage of trading using opposite Merck and Ab Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Ab Select 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 Ab Select will offset losses from the drop in Ab Select's long position.The idea behind Merck Company and Ab Select Equity 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.| Ab Select vs. Nuveen Large Cap | Ab Select vs. Nuveen Large Cap | Ab Select vs. HUMANA INC | Ab Select vs. SCOR PK |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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