Correlation Between Merck and Bald Eagle
Can any of the company-specific risk be diversified away by investing in both Merck and Bald Eagle 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 Bald Eagle into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Bald Eagle Gold, you can compare the effects of market volatilities on Merck and Bald Eagle 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 Bald Eagle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Bald Eagle.
Diversification Opportunities for Merck and Bald Eagle
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Merck and Bald is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Bald Eagle Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bald Eagle Gold 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 Bald Eagle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bald Eagle Gold has no effect on the direction of Merck i.e., Merck and Bald Eagle go up and down completely randomly.
Pair Corralation between Merck and Bald Eagle
Considering the 90-day investment horizon Merck Company is expected to under-perform the Bald Eagle. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 3.41 times less risky than Bald Eagle. The stock trades about -0.11 of its potential returns per unit of risk. The Bald Eagle Gold is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest 57.00 in Bald Eagle Gold on September 1, 2024 and sell it today you would lose (16.00) from holding Bald Eagle Gold or give up 28.07% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.21% |
| Values | Daily Returns |
Merck Company vs. Bald Eagle Gold
Performance |
| Timeline |
| Merck Company |
| Bald Eagle Gold |
Merck and Bald Eagle Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Bald Eagle
The main advantage of trading using opposite Merck and Bald Eagle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Bald Eagle 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 Bald Eagle will offset losses from the drop in Bald Eagle's long position.The idea behind Merck Company and Bald Eagle Gold 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.| Bald Eagle vs. TVI Pacific | Bald Eagle vs. Industrias Penoles Sab | Bald Eagle vs. HUMANA INC | Bald Eagle 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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