Correlation Between Merck and Fidelity Sustainable
Can any of the company-specific risk be diversified away by investing in both Merck and Fidelity Sustainable 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 Fidelity Sustainable into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Fidelity Sustainable Low, you can compare the effects of market volatilities on Merck and Fidelity Sustainable 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 Fidelity Sustainable. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Fidelity Sustainable.
Diversification Opportunities for Merck and Fidelity Sustainable
-0.34 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Merck and Fidelity is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Fidelity Sustainable Low in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Sustainable Low 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 Fidelity Sustainable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Sustainable Low has no effect on the direction of Merck i.e., Merck and Fidelity Sustainable go up and down completely randomly.
Pair Corralation between Merck and Fidelity Sustainable
Considering the 90-day investment horizon Merck Company is expected to generate 8.31 times more return on investment than Fidelity Sustainable. However, Merck is 8.31 times more volatile than Fidelity Sustainable Low. It trades about -0.01 of its potential returns per unit of risk. Fidelity Sustainable Low is currently generating about -0.08 per unit of risk. If you would invest 9,914 in Merck Company on November 4, 2024 and sell it today you would lose (32.00) from holding Merck Company or give up 0.32% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Fidelity Sustainable Low
Performance |
| Timeline |
| Merck Company |
| Fidelity Sustainable Low |
Merck and Fidelity Sustainable Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Fidelity Sustainable
The main advantage of trading using opposite Merck and Fidelity Sustainable positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Fidelity Sustainable 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 Fidelity Sustainable will offset losses from the drop in Fidelity Sustainable's long position.The idea behind Merck Company and Fidelity Sustainable Low 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.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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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