Correlation Between Merck and IShares Healthcare
Can any of the company-specific risk be diversified away by investing in both Merck and IShares Healthcare 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 Healthcare 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 Healthcare ETF, you can compare the effects of market volatilities on Merck and IShares Healthcare 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 Healthcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and IShares Healthcare.
Diversification Opportunities for Merck and IShares Healthcare
-0.28 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Merck and IShares is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and iShares Healthcare ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Healthcare 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 Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Healthcare ETF has no effect on the direction of Merck i.e., Merck and IShares Healthcare go up and down completely randomly.
Pair Corralation between Merck and IShares Healthcare
Considering the 90-day investment horizon Merck Company is expected to under-perform the IShares Healthcare. In addition to that, Merck is 2.53 times more volatile than iShares Healthcare ETF. It trades about -0.35 of its total potential returns per unit of risk. iShares Healthcare ETF is currently generating about 0.15 per unit of volatility. If you would invest 5,931 in iShares Healthcare ETF on November 18, 2024 and sell it today you would earn a total of 162.00 from holding iShares Healthcare ETF or generate 2.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. iShares Healthcare ETF
Performance |
| Timeline |
| Merck Company |
| iShares Healthcare ETF |
Merck and IShares Healthcare Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and IShares Healthcare
The main advantage of trading using opposite Merck and IShares Healthcare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, IShares Healthcare 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 Healthcare will offset losses from the drop in IShares Healthcare's long position.The idea behind Merck Company and iShares Healthcare ETF 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.| IShares Healthcare vs. iShares Financials ETF | IShares Healthcare vs. iShares Consumer Discretionary | IShares Healthcare vs. iShares Industrials ETF | IShares Healthcare vs. iShares Consumer Staples |
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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.
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