Correlation Between Merck and KraneShares Trust
Can any of the company-specific risk be diversified away by investing in both Merck and KraneShares Trust 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 KraneShares Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and KraneShares Trust, you can compare the effects of market volatilities on Merck and KraneShares Trust 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 KraneShares Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and KraneShares Trust.
Diversification Opportunities for Merck and KraneShares Trust
-0.44 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Merck and KraneShares is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and KraneShares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KraneShares Trust 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 KraneShares Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KraneShares Trust has no effect on the direction of Merck i.e., Merck and KraneShares Trust go up and down completely randomly.
Pair Corralation between Merck and KraneShares Trust
Considering the 90-day investment horizon Merck Company is expected to under-perform the KraneShares Trust. In addition to that, Merck is 2.8 times more volatile than KraneShares Trust. It trades about -0.01 of its total potential returns per unit of risk. KraneShares Trust is currently generating about -0.02 per unit of volatility. If you would invest 2,730 in KraneShares Trust on August 30, 2024 and sell it today you would lose (6.00) from holding KraneShares Trust or give up 0.22% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
Merck Company vs. KraneShares Trust
Performance |
| Timeline |
| Merck Company |
| KraneShares Trust |
Merck and KraneShares Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and KraneShares Trust
The main advantage of trading using opposite Merck and KraneShares Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, KraneShares Trust 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 KraneShares Trust will offset losses from the drop in KraneShares Trust's long position.| Merck vs. Emergent Biosolutions | Merck vs. Bausch Health Companies | Merck vs. Neurocrine Biosciences | Merck vs. Teva Pharma Industries |
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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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.
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