Correlation Between Merck and Crimson Wine
Can any of the company-specific risk be diversified away by investing in both Merck and Crimson Wine 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 Crimson Wine into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Crimson Wine, you can compare the effects of market volatilities on Merck and Crimson Wine 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 Crimson Wine. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Crimson Wine.
Diversification Opportunities for Merck and Crimson Wine
-0.65 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Merck and Crimson is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Crimson Wine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Crimson Wine 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 Crimson Wine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Crimson Wine has no effect on the direction of Merck i.e., Merck and Crimson Wine go up and down completely randomly.
Pair Corralation between Merck and Crimson Wine
Considering the 90-day investment horizon Merck Company is expected to under-perform the Crimson Wine. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.3 times less risky than Crimson Wine. The stock trades about -0.01 of its potential returns per unit of risk. The Crimson Wine is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 600.00 in Crimson Wine on August 28, 2024 and sell it today you would earn a total of 55.00 from holding Crimson Wine or generate 9.17% 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. Crimson Wine
Performance |
| Timeline |
| Merck Company |
| Crimson Wine |
Merck and Crimson Wine Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Crimson Wine
The main advantage of trading using opposite Merck and Crimson Wine positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Crimson Wine 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 Crimson Wine will offset losses from the drop in Crimson Wine's long position.| Merck vs. Capricor Therapeutics | Merck vs. Soleno Therapeutics | Merck vs. Bio Path Holdings | Merck vs. Moleculin Biotech |
| Crimson Wine vs. Pernod Ricard SA | Crimson Wine vs. Naked Wines plc | Crimson Wine vs. Willamette Valley Vineyards | Crimson Wine vs. Brown Forman |
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 Stocks Directory module to find actively traded stocks across global markets.
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