Correlation Between Merck and IShares Europe
Can any of the company-specific risk be diversified away by investing in both Merck and IShares Europe 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 IShares Europe into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and iShares Europe ETF, you can compare the effects of market volatilities on Merck and IShares Europe 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 IShares Europe. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and IShares Europe.
Diversification Opportunities for Merck and IShares Europe
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Merck and IShares is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and iShares Europe ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Europe ETF 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 IShares Europe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Europe ETF has no effect on the direction of Merck i.e., Merck and IShares Europe go up and down completely randomly.
Pair Corralation between Merck and IShares Europe
Considering the 90-day investment horizon Merck Company is expected to generate 1.47 times more return on investment than IShares Europe. However, Merck is 1.47 times more volatile than iShares Europe ETF. It trades about -0.1 of its potential returns per unit of risk. iShares Europe ETF is currently generating about -0.29 per unit of risk. If you would invest 10,423 in Merck Company on August 28, 2024 and sell it today you would lose (307.00) from holding Merck Company or give up 2.95% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. iShares Europe ETF
Performance |
| Timeline |
| Merck Company |
| iShares Europe ETF |
Merck and IShares Europe Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and IShares Europe
The main advantage of trading using opposite Merck and IShares Europe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, IShares Europe 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 IShares Europe will offset losses from the drop in IShares Europe's long position.| Merck vs. Capricor Therapeutics | Merck vs. Soleno Therapeutics | Merck vs. Bio Path Holdings | Merck vs. Moleculin Biotech |
| IShares Europe vs. WisdomTree International Hedged | IShares Europe vs. WisdomTree Emerging Markets | IShares Europe vs. WisdomTree Dynamic Currency |
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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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