Correlation Between Merck and Icon Natural
Can any of the company-specific risk be diversified away by investing in both Merck and Icon Natural 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 Icon Natural into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Icon Natural Resources, you can compare the effects of market volatilities on Merck and Icon Natural 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 Icon Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Icon Natural.
Diversification Opportunities for Merck and Icon Natural
-0.65 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Merck and Icon is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Icon Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Icon Natural Resources 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 Icon Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Icon Natural Resources has no effect on the direction of Merck i.e., Merck and Icon Natural go up and down completely randomly.
Pair Corralation between Merck and Icon Natural
Considering the 90-day investment horizon Merck Company is expected to under-perform the Icon Natural. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.07 times less risky than Icon Natural. The stock trades about -0.05 of its potential returns per unit of risk. The Icon Natural Resources is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest 1,814 in Icon Natural Resources on August 31, 2024 and sell it today you would earn a total of 165.00 from holding Icon Natural Resources or generate 9.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Icon Natural Resources
Performance |
| Timeline |
| Merck Company |
| Icon Natural Resources |
Merck and Icon Natural Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Icon Natural
The main advantage of trading using opposite Merck and Icon Natural positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Icon Natural 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 Icon Natural will offset losses from the drop in Icon Natural's long position.The idea behind Merck Company and Icon Natural Resources 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.| Icon Natural vs. Icon Financial Fund | Icon Natural vs. Dreyfus Natural Resources | Icon Natural vs. Icon Natural Resources | Icon Natural vs. Icon Information Technology |
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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