Correlation Between Merck and Dolby Laboratories
Can any of the company-specific risk be diversified away by investing in both Merck and Dolby Laboratories 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 Dolby Laboratories into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Dolby Laboratories, you can compare the effects of market volatilities on Merck and Dolby Laboratories 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 Dolby Laboratories. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Dolby Laboratories.
Diversification Opportunities for Merck and Dolby Laboratories
-0.46 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Merck and Dolby is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Dolby Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dolby Laboratories 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 Dolby Laboratories. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dolby Laboratories has no effect on the direction of Merck i.e., Merck and Dolby Laboratories go up and down completely randomly.
Pair Corralation between Merck and Dolby Laboratories
Considering the 90-day investment horizon Merck Company is expected to under-perform the Dolby Laboratories. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 2.76 times less risky than Dolby Laboratories. The stock trades about -0.1 of its potential returns per unit of risk. The Dolby Laboratories is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 7,300 in Dolby Laboratories on August 28, 2024 and sell it today you would earn a total of 730.00 from holding Dolby Laboratories or generate 10.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Merck Company vs. Dolby Laboratories
Performance |
| Timeline |
| Merck Company |
| Dolby Laboratories |
Merck and Dolby Laboratories Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Dolby Laboratories
The main advantage of trading using opposite Merck and Dolby Laboratories positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Dolby Laboratories 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 Dolby Laboratories will offset losses from the drop in Dolby Laboratories' long position.| Merck vs. Capricor Therapeutics | Merck vs. Soleno Therapeutics | Merck vs. Bio Path Holdings | Merck vs. Moleculin Biotech |
| Dolby Laboratories vs. Jabil Circuit | Dolby Laboratories vs. Sanmina | Dolby Laboratories vs. Methode Electronics |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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