Correlation Between Merck and Plumb Balanced
Can any of the company-specific risk be diversified away by investing in both Merck and Plumb Balanced 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 Plumb Balanced into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Plumb Balanced, you can compare the effects of market volatilities on Merck and Plumb Balanced 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 Plumb Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Plumb Balanced.
Diversification Opportunities for Merck and Plumb Balanced
-0.79 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Merck and Plumb is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Plumb Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plumb Balanced 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 Plumb Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plumb Balanced has no effect on the direction of Merck i.e., Merck and Plumb Balanced go up and down completely randomly.
Pair Corralation between Merck and Plumb Balanced
Considering the 90-day investment horizon Merck Company is expected to under-perform the Plumb Balanced. In addition to that, Merck is 2.1 times more volatile than Plumb Balanced. It trades about -0.11 of its total potential returns per unit of risk. Plumb Balanced is currently generating about 0.09 per unit of volatility. If you would invest 3,783 in Plumb Balanced on September 2, 2024 and sell it today you would earn a total of 319.00 from holding Plumb Balanced or generate 8.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Plumb Balanced
Performance |
| Timeline |
| Merck Company |
| Plumb Balanced |
Merck and Plumb Balanced Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Plumb Balanced
The main advantage of trading using opposite Merck and Plumb Balanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Plumb Balanced 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 Plumb Balanced will offset losses from the drop in Plumb Balanced's long position.The idea behind Merck Company and Plumb Balanced 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.| Plumb Balanced vs. Value Line Asset | Plumb Balanced vs. Sit Balanced Fund | Plumb Balanced vs. Performance Trust Strategic | Plumb Balanced vs. Columbia Balanced Fund |
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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