Correlation Between Merck and Burnham Holdings
Can any of the company-specific risk be diversified away by investing in both Merck and Burnham 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 Burnham 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 Burnham Holdings, you can compare the effects of market volatilities on Merck and Burnham 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 Burnham Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Burnham Holdings.
Diversification Opportunities for Merck and Burnham Holdings
-0.67 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Merck and Burnham is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Burnham Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Burnham 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 Burnham Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Burnham Holdings has no effect on the direction of Merck i.e., Merck and Burnham Holdings go up and down completely randomly.
Pair Corralation between Merck and Burnham Holdings
Considering the 90-day investment horizon Merck Company is expected to under-perform the Burnham Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.48 times less risky than Burnham Holdings. The stock trades about -0.03 of its potential returns per unit of risk. The Burnham Holdings is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 1,409 in Burnham Holdings on August 29, 2024 and sell it today you would lose (12.00) from holding Burnham Holdings or give up 0.85% 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. Burnham Holdings
Performance |
| Timeline |
| Merck Company |
| Burnham Holdings |
Merck and Burnham Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Burnham Holdings
The main advantage of trading using opposite Merck and Burnham Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Burnham 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 Burnham Holdings will offset losses from the drop in Burnham Holdings' long position.| Merck vs. Pharvaris BV | Merck vs. Brinker International | Merck vs. Alcoa Corp | Merck vs. Direxion Daily FTSE |
| Burnham Holdings vs. Deere Company | Burnham Holdings vs. Columbus McKinnon | Burnham Holdings vs. Hyster Yale Materials Handling | Burnham Holdings vs. Manitowoc |
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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