Correlation Between Merck and Isabella Bank
Can any of the company-specific risk be diversified away by investing in both Merck and Isabella Bank 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 Isabella Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Isabella Bank, you can compare the effects of market volatilities on Merck and Isabella Bank 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 Isabella Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Isabella Bank.
Diversification Opportunities for Merck and Isabella Bank
-0.76 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Merck and Isabella is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Isabella Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Isabella Bank 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 Isabella Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Isabella Bank has no effect on the direction of Merck i.e., Merck and Isabella Bank go up and down completely randomly.
Pair Corralation between Merck and Isabella Bank
Considering the 90-day investment horizon Merck Company is expected to under-perform the Isabella Bank. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.8 times less risky than Isabella Bank. The stock trades about 0.0 of its potential returns per unit of risk. The Isabella Bank is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 1,934 in Isabella Bank on September 2, 2024 and sell it today you would earn a total of 556.00 from holding Isabella Bank or generate 28.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 89.78% |
| Values | Daily Returns |
Merck Company vs. Isabella Bank
Performance |
| Timeline |
| Merck Company |
| Isabella Bank |
Merck and Isabella Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Isabella Bank
The main advantage of trading using opposite Merck and Isabella Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Isabella Bank 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 Isabella Bank will offset losses from the drop in Isabella Bank's long position.The idea behind Merck Company and Isabella Bank 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.| Isabella Bank vs. Home Federal Bancorp | Isabella Bank vs. Magyar Bancorp | Isabella Bank vs. ChoiceOne Financial Services | Isabella Bank vs. Heritage Commerce Corp |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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