Correlation Between Merck and PT Bank
Can any of the company-specific risk be diversified away by investing in both Merck and PT Bank 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 PT Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and PT Bank Rakyat, you can compare the effects of market volatilities on Merck and PT Bank 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 PT Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and PT Bank.
Diversification Opportunities for Merck and PT Bank
Poor diversification
The 3 months correlation between Merck and BKRKF is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and PT Bank Rakyat in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Bank Rakyat 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 PT Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Bank Rakyat has no effect on the direction of Merck i.e., Merck and PT Bank go up and down completely randomly.
Pair Corralation between Merck and PT Bank
Considering the 90-day investment horizon Merck Company is expected to under-perform the PT Bank. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 4.1 times less risky than PT Bank. The stock trades about -0.2 of its potential returns per unit of risk. The PT Bank Rakyat is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest 31.00 in PT Bank Rakyat on August 23, 2024 and sell it today you would lose (4.00) from holding PT Bank Rakyat or give up 12.9% 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. PT Bank Rakyat
Performance |
| Timeline |
| Merck Company |
| PT Bank Rakyat |
Merck and PT Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and PT Bank
The main advantage of trading using opposite Merck and PT Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, PT Bank 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 PT Bank will offset losses from the drop in PT Bank's long position.| Merck vs. Johnson Johnson | Merck vs. Small Cap Core | Merck vs. Freedom Holding Corp | Merck vs. Gfl Environmental Holdings |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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