Correlation Between Merck and Pimco Energy
Can any of the company-specific risk be diversified away by investing in both Merck and Pimco Energy 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 Pimco Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Pimco Energy Tactical, you can compare the effects of market volatilities on Merck and Pimco Energy 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 Pimco Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Pimco Energy.
Diversification Opportunities for Merck and Pimco Energy
-0.62 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Merck and Pimco is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Pimco Energy Tactical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pimco Energy Tactical 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 Pimco Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pimco Energy Tactical has no effect on the direction of Merck i.e., Merck and Pimco Energy go up and down completely randomly.
Pair Corralation between Merck and Pimco Energy
Considering the 90-day investment horizon Merck Company is expected to under-perform the Pimco Energy. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.5 times less risky than Pimco Energy. The stock trades about -0.12 of its potential returns per unit of risk. The Pimco Energy Tactical is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest 2,627 in Pimco Energy Tactical on October 10, 2024 and sell it today you would lose (32.00) from holding Pimco Energy Tactical or give up 1.22% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Pimco Energy Tactical
Performance |
| Timeline |
| Merck Company |
| Pimco Energy Tactical |
Merck and Pimco Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Pimco Energy
The main advantage of trading using opposite Merck and Pimco Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Pimco Energy 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 Pimco Energy will offset losses from the drop in Pimco Energy's long position.The idea behind Merck Company and Pimco Energy Tactical 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.| Pimco Energy vs. Versatile Bond Portfolio | Pimco Energy vs. Commodities Strategy Fund | Pimco Energy vs. Semiconductor Ultrasector Profund | Pimco Energy vs. T Rowe Price |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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