Correlation Between Merck and Imperial Brands
Can any of the company-specific risk be diversified away by investing in both Merck and Imperial Brands 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 Imperial Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Imperial Brands PLC, you can compare the effects of market volatilities on Merck and Imperial Brands 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 Imperial Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Imperial Brands.
Diversification Opportunities for Merck and Imperial Brands
-0.78 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Merck and Imperial is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Imperial Brands PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Imperial Brands PLC 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 Imperial Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Imperial Brands PLC has no effect on the direction of Merck i.e., Merck and Imperial Brands go up and down completely randomly.
Pair Corralation between Merck and Imperial Brands
Considering the 90-day investment horizon Merck is expected to generate 23.97 times less return on investment than Imperial Brands. In addition to that, Merck is 1.16 times more volatile than Imperial Brands PLC. It trades about 0.0 of its total potential returns per unit of risk. Imperial Brands PLC is currently generating about 0.13 per unit of volatility. If you would invest 2,256 in Imperial Brands PLC on August 26, 2024 and sell it today you would earn a total of 920.00 from holding Imperial Brands PLC or generate 40.78% 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. Imperial Brands PLC
Performance |
| Timeline |
| Merck Company |
| Imperial Brands PLC |
Merck and Imperial Brands Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Imperial Brands
The main advantage of trading using opposite Merck and Imperial Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Imperial Brands 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 Imperial Brands will offset losses from the drop in Imperial Brands' long position.| Merck vs. Capricor Therapeutics | Merck vs. Soleno Therapeutics | Merck vs. Bio Path Holdings | Merck vs. Moleculin Biotech |
| Imperial Brands vs. Embotelladora Andina SA | Imperial Brands vs. Signet International Holdings | Imperial Brands vs. National Beverage Corp | Imperial Brands vs. PT Astra International |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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