Correlation Between Merck and Dimensional Core
Can any of the company-specific risk be diversified away by investing in both Merck and Dimensional Core 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 Dimensional Core into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Dimensional Core Equity, you can compare the effects of market volatilities on Merck and Dimensional Core 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 Dimensional Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Dimensional Core.
Diversification Opportunities for Merck and Dimensional Core
-0.82 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Merck and Dimensional is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Dimensional Core Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional Core Equity 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 Dimensional Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional Core Equity has no effect on the direction of Merck i.e., Merck and Dimensional Core go up and down completely randomly.
Pair Corralation between Merck and Dimensional Core
Considering the 90-day investment horizon Merck Company is expected to under-perform the Dimensional Core. In addition to that, Merck is 1.59 times more volatile than Dimensional Core Equity. It trades about -0.02 of its total potential returns per unit of risk. Dimensional Core Equity is currently generating about 0.39 per unit of volatility. If you would invest 3,938 in Dimensional Core Equity on September 1, 2024 and sell it today you would earn a total of 267.00 from holding Dimensional Core Equity or generate 6.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Dimensional Core Equity
Performance |
| Timeline |
| Merck Company |
| Dimensional Core Equity |
Merck and Dimensional Core Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Dimensional Core
The main advantage of trading using opposite Merck and Dimensional Core positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Dimensional Core 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 Dimensional Core will offset losses from the drop in Dimensional Core's long position.The idea behind Merck Company and Dimensional Core Equity 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.| Dimensional Core vs. Vanguard Total Stock | Dimensional Core vs. SPDR SP 500 | Dimensional Core vs. iShares Core SP | Dimensional Core vs. Vanguard Dividend Appreciation |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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