Correlation Between Merck and Character
Can any of the company-specific risk be diversified away by investing in both Merck and Character 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 Character into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and The Character Group, you can compare the effects of market volatilities on Merck and Character 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 Character. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Character.
Diversification Opportunities for Merck and Character
Excellent diversification
The 3 months correlation between Merck and Character is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and The Character Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Character 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 Character. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Character Group has no effect on the direction of Merck i.e., Merck and Character go up and down completely randomly.
Pair Corralation between Merck and Character
Considering the 90-day investment horizon Merck Company is expected to under-perform the Character. In addition to that, Merck is 20.31 times more volatile than The Character Group. It trades about -0.05 of its total potential returns per unit of risk. The Character Group is currently generating about 0.21 per unit of volatility. If you would invest 325.00 in The Character Group on August 31, 2024 and sell it today you would earn a total of 1.00 from holding The Character Group or generate 0.31% 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. The Character Group
Performance |
| Timeline |
| Merck Company |
| Character Group |
Merck and Character Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Character
The main advantage of trading using opposite Merck and Character positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Character 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 Character will offset losses from the drop in Character's long position.The idea behind Merck Company and The Character 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.| Character vs. American Outdoor Brands | Character vs. Clarus Corp | Character vs. Escalade Incorporated | Character vs. Johnson Outdoors |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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