Correlation Between Merck and BYD Company
Can any of the company-specific risk be diversified away by investing in both Merck and BYD Company 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 BYD Company into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and BYD Company Limited, you can compare the effects of market volatilities on Merck and BYD Company 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 BYD Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and BYD Company.
Diversification Opportunities for Merck and BYD Company
-0.56 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Merck and BYD is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and BYD Company Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BYD Limited 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 BYD Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BYD Limited has no effect on the direction of Merck i.e., Merck and BYD Company go up and down completely randomly.
Pair Corralation between Merck and BYD Company
Considering the 90-day investment horizon Merck Company is expected to generate 0.61 times more return on investment than BYD Company. However, Merck Company is 1.65 times less risky than BYD Company. It trades about -0.1 of its potential returns per unit of risk. BYD Company Limited is currently generating about -0.28 per unit of risk. If you would invest 10,423 in Merck Company on August 27, 2024 and sell it today you would lose (307.00) from holding Merck Company or give up 2.95% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. BYD Company Limited
Performance |
| Timeline |
| Merck Company |
| BYD Limited |
Merck and BYD Company Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and BYD Company
The main advantage of trading using opposite Merck and BYD Company positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, BYD Company 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 BYD Company will offset losses from the drop in BYD Company's long position.| Merck vs. Capricor Therapeutics | Merck vs. Soleno Therapeutics | Merck vs. Bio Path Holdings | Merck vs. Moleculin Biotech |
| BYD Company vs. Isuzu Motors | BYD Company vs. Renault SA | BYD Company vs. Toyota Motor Corp | BYD Company vs. Porsche Automobile Holding |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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