Correlation Between Merck and LL Flooring
Can any of the company-specific risk be diversified away by investing in both Merck and LL Flooring 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 LL Flooring into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and LL Flooring Holdings, you can compare the effects of market volatilities on Merck and LL Flooring 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 LL Flooring. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and LL Flooring.
Diversification Opportunities for Merck and LL Flooring
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Merck and LL Flooring is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and LL Flooring Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LL Flooring Holdings 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 LL Flooring. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LL Flooring Holdings has no effect on the direction of Merck i.e., Merck and LL Flooring go up and down completely randomly.
Pair Corralation between Merck and LL Flooring
Considering the 90-day investment horizon Merck Company is expected to generate 0.13 times more return on investment than LL Flooring. However, Merck Company is 7.8 times less risky than LL Flooring. It trades about 0.0 of its potential returns per unit of risk. LL Flooring Holdings is currently generating about -0.1 per unit of risk. If you would invest 10,641 in Merck Company on September 1, 2024 and sell it today you would lose (477.00) from holding Merck Company or give up 4.48% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 79.84% |
| Values | Daily Returns |
Merck Company vs. LL Flooring Holdings
Performance |
| Timeline |
| Merck Company |
| LL Flooring Holdings |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Merck and LL Flooring Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and LL Flooring
The main advantage of trading using opposite Merck and LL Flooring positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, LL Flooring 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 LL Flooring will offset losses from the drop in LL Flooring's long position.The idea behind Merck Company and LL Flooring Holdings 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.| LL Flooring vs. Haverty Furniture Companies | LL Flooring vs. Arhaus Inc | LL Flooring vs. Tile Shop Holdings | LL Flooring vs. Floor Decor Holdings |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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