Correlation Between Merck and First Trust
Can any of the company-specific risk be diversified away by investing in both Merck and First Trust 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 First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and First Trust Water, you can compare the effects of market volatilities on Merck and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and First Trust.
Diversification Opportunities for Merck and First Trust
-0.37 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Merck and First is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and First Trust Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Water 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Water has no effect on the direction of Merck i.e., Merck and First Trust go up and down completely randomly.
Pair Corralation between Merck and First Trust
Considering the 90-day investment horizon Merck is expected to generate 8.24 times less return on investment than First Trust. In addition to that, Merck is 1.28 times more volatile than First Trust Water. It trades about 0.01 of its total potential returns per unit of risk. First Trust Water is currently generating about 0.06 per unit of volatility. If you would invest 8,417 in First Trust Water on August 27, 2024 and sell it today you would earn a total of 2,531 from holding First Trust Water or generate 30.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. First Trust Water
Performance |
| Timeline |
| Merck Company |
| First Trust Water |
Merck and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and First Trust
The main advantage of trading using opposite Merck and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.| Merck vs. Capricor Therapeutics | Merck vs. Soleno Therapeutics | Merck vs. Bio Path Holdings | Merck vs. Moleculin Biotech |
| First Trust vs. Invesco SP Global | First Trust vs. Invesco Global Water | First Trust vs. Invesco Water Resources | First Trust vs. First Trust NASDAQ |
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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