Correlation Between Merck and Mainstay Unconstrained
Can any of the company-specific risk be diversified away by investing in both Merck and Mainstay Unconstrained 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 Mainstay Unconstrained into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Mainstay Unconstrained Bond, you can compare the effects of market volatilities on Merck and Mainstay Unconstrained 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 Mainstay Unconstrained. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Mainstay Unconstrained.
Diversification Opportunities for Merck and Mainstay Unconstrained
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Merck and Mainstay is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Mainstay Unconstrained Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mainstay Unconstrained 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 Mainstay Unconstrained. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mainstay Unconstrained has no effect on the direction of Merck i.e., Merck and Mainstay Unconstrained go up and down completely randomly.
Pair Corralation between Merck and Mainstay Unconstrained
Considering the 90-day investment horizon Merck is expected to generate 1.68 times less return on investment than Mainstay Unconstrained. In addition to that, Merck is 4.55 times more volatile than Mainstay Unconstrained Bond. It trades about 0.02 of its total potential returns per unit of risk. Mainstay Unconstrained Bond is currently generating about 0.14 per unit of volatility. If you would invest 784.00 in Mainstay Unconstrained Bond on August 24, 2024 and sell it today you would earn a total of 80.00 from holding Mainstay Unconstrained Bond or generate 10.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.6% |
| Values | Daily Returns |
Merck Company vs. Mainstay Unconstrained Bond
Performance |
| Timeline |
| Merck Company |
| Mainstay Unconstrained |
Merck and Mainstay Unconstrained Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Mainstay Unconstrained
The main advantage of trading using opposite Merck and Mainstay Unconstrained positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Mainstay Unconstrained 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 Mainstay Unconstrained will offset losses from the drop in Mainstay Unconstrained's long position.The idea behind Merck Company and Mainstay Unconstrained Bond 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.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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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