Correlation Between Merck and Overlay Shares
Can any of the company-specific risk be diversified away by investing in both Merck and Overlay Shares 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 Overlay Shares into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Overlay Shares Foreign, you can compare the effects of market volatilities on Merck and Overlay Shares 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 Overlay Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Overlay Shares.
Diversification Opportunities for Merck and Overlay Shares
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Merck and Overlay is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Overlay Shares Foreign in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Overlay Shares Foreign 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 Overlay Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Overlay Shares Foreign has no effect on the direction of Merck i.e., Merck and Overlay Shares go up and down completely randomly.
Pair Corralation between Merck and Overlay Shares
Considering the 90-day investment horizon Merck Company is expected to under-perform the Overlay Shares. In addition to that, Merck is 1.52 times more volatile than Overlay Shares Foreign. It trades about -0.11 of its total potential returns per unit of risk. Overlay Shares Foreign is currently generating about 0.01 per unit of volatility. If you would invest 2,459 in Overlay Shares Foreign on August 31, 2024 and sell it today you would earn a total of 28.00 from holding Overlay Shares Foreign or generate 1.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Overlay Shares Foreign
Performance |
| Timeline |
| Merck Company |
| Overlay Shares Foreign |
Merck and Overlay Shares Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Overlay Shares
The main advantage of trading using opposite Merck and Overlay Shares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Overlay Shares 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 Overlay Shares will offset losses from the drop in Overlay Shares' long position.The idea behind Merck Company and Overlay Shares Foreign 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.| Overlay Shares vs. iShares ESG Aggregate | Overlay Shares vs. SPDR MSCI Emerging | Overlay Shares vs. Aquagold International | Overlay Shares vs. Thrivent High Yield |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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