Correlation Between Merck and BrainChip Holdings
Can any of the company-specific risk be diversified away by investing in both Merck and BrainChip Holdings 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 BrainChip Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and BrainChip Holdings, you can compare the effects of market volatilities on Merck and BrainChip Holdings 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 BrainChip Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and BrainChip Holdings.
Diversification Opportunities for Merck and BrainChip Holdings
-0.68 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Merck and BrainChip is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and BrainChip Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BrainChip Holdings 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 BrainChip Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BrainChip Holdings has no effect on the direction of Merck i.e., Merck and BrainChip Holdings go up and down completely randomly.
Pair Corralation between Merck and BrainChip Holdings
Considering the 90-day investment horizon Merck Company is expected to under-perform the BrainChip Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 4.59 times less risky than BrainChip Holdings. The stock trades about -0.06 of its potential returns per unit of risk. The BrainChip Holdings is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 1,056 in BrainChip Holdings on September 1, 2024 and sell it today you would lose (414.00) from holding BrainChip Holdings or give up 39.2% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. BrainChip Holdings
Performance |
| Timeline |
| Merck Company |
| BrainChip Holdings |
Merck and BrainChip Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and BrainChip Holdings
The main advantage of trading using opposite Merck and BrainChip Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, BrainChip Holdings 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 BrainChip Holdings will offset losses from the drop in BrainChip Holdings' long position.The idea behind Merck Company and BrainChip Holdings 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.| BrainChip Holdings vs. Power Integrations | BrainChip Holdings vs. MACOM Technology Solutions | BrainChip Holdings vs. Intchains Group Limited | BrainChip Holdings vs. Vishay Intertechnology |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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