Correlation Between Merck and Invesco Optimum
Can any of the company-specific risk be diversified away by investing in both Merck and Invesco Optimum 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 Invesco Optimum into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Invesco Optimum Yield, you can compare the effects of market volatilities on Merck and Invesco Optimum 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 Invesco Optimum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Invesco Optimum.
Diversification Opportunities for Merck and Invesco Optimum
-0.3 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Merck and Invesco is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Invesco Optimum Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Optimum Yield 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 Invesco Optimum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Optimum Yield has no effect on the direction of Merck i.e., Merck and Invesco Optimum go up and down completely randomly.
Pair Corralation between Merck and Invesco Optimum
Considering the 90-day investment horizon Merck Company is expected to under-perform the Invesco Optimum. In addition to that, Merck is 1.46 times more volatile than Invesco Optimum Yield. It trades about -0.05 of its total potential returns per unit of risk. Invesco Optimum Yield is currently generating about -0.07 per unit of volatility. If you would invest 1,356 in Invesco Optimum Yield on August 31, 2024 and sell it today you would lose (20.00) from holding Invesco Optimum Yield or give up 1.47% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Invesco Optimum Yield
Performance |
| Timeline |
| Merck Company |
| Invesco Optimum Yield |
Merck and Invesco Optimum Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Invesco Optimum
The main advantage of trading using opposite Merck and Invesco Optimum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Invesco Optimum 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 Invesco Optimum will offset losses from the drop in Invesco Optimum's long position.The idea behind Merck Company and Invesco Optimum Yield 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.| Invesco Optimum vs. iShares GSCI Commodity | Invesco Optimum vs. First Trust Global | Invesco Optimum vs. iShares SP GSCI | Invesco Optimum vs. Invesco DB Commodity |
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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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