Correlation Between Merck and Arrow DWA
Can any of the company-specific risk be diversified away by investing in both Merck and Arrow DWA 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 Arrow DWA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Arrow DWA Tactical, you can compare the effects of market volatilities on Merck and Arrow DWA 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 Arrow DWA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Arrow DWA.
Diversification Opportunities for Merck and Arrow DWA
Very poor diversification
The 3 months correlation between Merck and Arrow is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Arrow DWA Tactical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow DWA Tactical 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 Arrow DWA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arrow DWA Tactical has no effect on the direction of Merck i.e., Merck and Arrow DWA go up and down completely randomly.
Pair Corralation between Merck and Arrow DWA
Considering the 90-day investment horizon Merck Company is expected to under-perform the Arrow DWA. In addition to that, Merck is 1.32 times more volatile than Arrow DWA Tactical. It trades about -0.22 of its total potential returns per unit of risk. Arrow DWA Tactical is currently generating about -0.24 per unit of volatility. If you would invest 3,005 in Arrow DWA Tactical on August 25, 2024 and sell it today you would lose (157.00) from holding Arrow DWA Tactical or give up 5.22% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Arrow DWA Tactical
Performance |
| Timeline |
| Merck Company |
| Arrow DWA Tactical |
Merck and Arrow DWA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Arrow DWA
The main advantage of trading using opposite Merck and Arrow DWA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Arrow DWA 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 Arrow DWA will offset losses from the drop in Arrow DWA's long position.| Merck vs. Capricor Therapeutics | Merck vs. Akari Therapeutics PLC | Merck vs. Soleno Therapeutics | Merck vs. Bio Path Holdings |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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