Correlation Between Merck and Close Brothers
Can any of the company-specific risk be diversified away by investing in both Merck and Close Brothers 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 Close Brothers into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Close Brothers Group, you can compare the effects of market volatilities on Merck and Close Brothers 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 Close Brothers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Close Brothers.
Diversification Opportunities for Merck and Close Brothers
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Merck and Close is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Close Brothers Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Close Brothers Group 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 Close Brothers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Close Brothers Group has no effect on the direction of Merck i.e., Merck and Close Brothers go up and down completely randomly.
Pair Corralation between Merck and Close Brothers
Considering the 90-day investment horizon Merck Company is expected to generate 0.24 times more return on investment than Close Brothers. However, Merck Company is 4.13 times less risky than Close Brothers. It trades about -0.16 of its potential returns per unit of risk. Close Brothers Group is currently generating about -0.23 per unit of risk. If you would invest 11,581 in Merck Company on September 2, 2024 and sell it today you would lose (1,417) from holding Merck Company or give up 12.24% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Close Brothers Group
Performance |
| Timeline |
| Merck Company |
| Close Brothers Group |
Merck and Close Brothers Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Close Brothers
The main advantage of trading using opposite Merck and Close Brothers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Close Brothers 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 Close Brothers will offset losses from the drop in Close Brothers' long position.The idea behind Merck Company and Close Brothers Group 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.| Close Brothers vs. Morgan Stanley | Close Brothers vs. Goldman Sachs Group | Close Brothers vs. HUMANA INC | Close Brothers vs. SCOR PK |
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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