Correlation Between Merck and Floor Decor
Can any of the company-specific risk be diversified away by investing in both Merck and Floor Decor 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 Floor Decor into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Floor Decor Holdings, you can compare the effects of market volatilities on Merck and Floor Decor 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 Floor Decor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Floor Decor.
Diversification Opportunities for Merck and Floor Decor
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Merck and Floor is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Floor Decor Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Floor Decor Holdings 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 Floor Decor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Floor Decor Holdings has no effect on the direction of Merck i.e., Merck and Floor Decor go up and down completely randomly.
Pair Corralation between Merck and Floor Decor
Considering the 90-day investment horizon Merck is expected to generate 101.6 times less return on investment than Floor Decor. But when comparing it to its historical volatility, Merck Company is 1.95 times less risky than Floor Decor. It trades about 0.0 of its potential returns per unit of risk. Floor Decor Holdings is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 7,861 in Floor Decor Holdings on September 3, 2024 and sell it today you would earn a total of 3,360 from holding Floor Decor Holdings or generate 42.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Floor Decor Holdings
Performance |
| Timeline |
| Merck Company |
| Floor Decor Holdings |
Merck and Floor Decor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Floor Decor
The main advantage of trading using opposite Merck and Floor Decor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Floor Decor 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 Floor Decor will offset losses from the drop in Floor Decor's long position.| Merck vs. Pfizer Inc | Merck vs. Johnson Johnson | Merck vs. Highway Holdings Limited | Merck vs. QCR Holdings |
| Floor Decor vs. Partner Communications | Floor Decor vs. Merck Company | Floor Decor vs. Western Midstream Partners | Floor Decor vs. Edgewise Therapeutics |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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