Correlation Between Merck and Kavango Resources
Can any of the company-specific risk be diversified away by investing in both Merck and Kavango Resources 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 Kavango Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Kavango Resources Plc, you can compare the effects of market volatilities on Merck and Kavango Resources 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 Kavango Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Kavango Resources.
Diversification Opportunities for Merck and Kavango Resources
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Merck and Kavango is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Kavango Resources Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kavango Resources 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 Kavango Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kavango Resources Plc has no effect on the direction of Merck i.e., Merck and Kavango Resources go up and down completely randomly.
Pair Corralation between Merck and Kavango Resources
Considering the 90-day investment horizon Merck Company is expected to under-perform the Kavango Resources. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 5.84 times less risky than Kavango Resources. The stock trades about 0.0 of its potential returns per unit of risk. The Kavango Resources Plc is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 1.00 in Kavango Resources Plc on September 3, 2024 and sell it today you would lose (0.10) from holding Kavango Resources Plc or give up 10.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Kavango Resources Plc
Performance |
| Timeline |
| Merck Company |
| Kavango Resources Plc |
Merck and Kavango Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Kavango Resources
The main advantage of trading using opposite Merck and Kavango Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Kavango Resources 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 Kavango Resources will offset losses from the drop in Kavango Resources' long position.| Merck vs. Pfizer Inc | Merck vs. Johnson Johnson | Merck vs. Highway Holdings Limited | Merck vs. QCR Holdings |
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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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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