Correlation Between Merck and Bank of Botetourt
Can any of the company-specific risk be diversified away by investing in both Merck and Bank of Botetourt 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 Bank of Botetourt into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Bank of Botetourt, you can compare the effects of market volatilities on Merck and Bank of Botetourt 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 Bank of Botetourt. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Bank of Botetourt.
Diversification Opportunities for Merck and Bank of Botetourt
-0.62 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Merck and Bank is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Bank of Botetourt in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Botetourt 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 Bank of Botetourt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Botetourt has no effect on the direction of Merck i.e., Merck and Bank of Botetourt go up and down completely randomly.
Pair Corralation between Merck and Bank of Botetourt
Considering the 90-day investment horizon Merck Company is expected to under-perform the Bank of Botetourt. In addition to that, Merck is 2.12 times more volatile than Bank of Botetourt. It trades about -0.02 of its total potential returns per unit of risk. Bank of Botetourt is currently generating about 0.19 per unit of volatility. If you would invest 3,136 in Bank of Botetourt on September 1, 2024 and sell it today you would earn a total of 78.00 from holding Bank of Botetourt or generate 2.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Bank of Botetourt
Performance |
| Timeline |
| Merck Company |
| Bank of Botetourt |
Merck and Bank of Botetourt Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Bank of Botetourt
The main advantage of trading using opposite Merck and Bank of Botetourt positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Bank of Botetourt 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 Bank of Botetourt will offset losses from the drop in Bank of Botetourt's long position.The idea behind Merck Company and Bank of Botetourt 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.| Bank of Botetourt vs. Century Financial Corp | Bank of Botetourt vs. FS Bancorp | Bank of Botetourt vs. Lyons Bancorp | Bank of Botetourt vs. Solvay Bank Corp |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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