Correlation Between Merck and Eagle Financial
Can any of the company-specific risk be diversified away by investing in both Merck and Eagle Financial 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 Eagle Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Eagle Financial Services, you can compare the effects of market volatilities on Merck and Eagle Financial 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 Eagle Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Eagle Financial.
Diversification Opportunities for Merck and Eagle Financial
-0.41 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Merck and Eagle is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Eagle Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eagle Financial Services 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 Eagle Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eagle Financial Services has no effect on the direction of Merck i.e., Merck and Eagle Financial go up and down completely randomly.
Pair Corralation between Merck and Eagle Financial
Considering the 90-day investment horizon Merck Company is expected to under-perform the Eagle Financial. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.05 times less risky than Eagle Financial. The stock trades about -0.06 of its potential returns per unit of risk. The Eagle Financial Services is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 2,914 in Eagle Financial Services on September 1, 2024 and sell it today you would earn a total of 636.00 from holding Eagle Financial Services or generate 21.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 88.83% |
| Values | Daily Returns |
Merck Company vs. Eagle Financial Services
Performance |
| Timeline |
| Merck Company |
| Eagle Financial Services |
Merck and Eagle Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Eagle Financial
The main advantage of trading using opposite Merck and Eagle Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Eagle Financial 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 Eagle Financial will offset losses from the drop in Eagle Financial's long position.The idea behind Merck Company and Eagle Financial Services 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.| Eagle Financial vs. Chesapeake Finl Shs | Eagle Financial vs. Taylor Calvin B | Eagle Financial vs. PSB Holdings | Eagle Financial vs. Farmers Merchants Bancorp |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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