Correlation Between Merck and Invesco SP
Can any of the company-specific risk be diversified away by investing in both Merck and Invesco SP 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 SP 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 SP 500, you can compare the effects of market volatilities on Merck and Invesco SP 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 SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Invesco SP.
Diversification Opportunities for Merck and Invesco SP
-0.78 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Merck and Invesco is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Invesco SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP 500 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 SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco SP 500 has no effect on the direction of Merck i.e., Merck and Invesco SP go up and down completely randomly.
Pair Corralation between Merck and Invesco SP
Considering the 90-day investment horizon Merck Company is expected to under-perform the Invesco SP. In addition to that, Merck is 1.6 times more volatile than Invesco SP 500. It trades about -0.11 of its total potential returns per unit of risk. Invesco SP 500 is currently generating about 0.13 per unit of volatility. If you would invest 5,432 in Invesco SP 500 on September 1, 2024 and sell it today you would earn a total of 875.00 from holding Invesco SP 500 or generate 16.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 99.21% |
| Values | Daily Returns |
Merck Company vs. Invesco SP 500
Performance |
| Timeline |
| Merck Company |
| Invesco SP 500 |
Merck and Invesco SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Invesco SP
The main advantage of trading using opposite Merck and Invesco SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Invesco SP 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 SP will offset losses from the drop in Invesco SP's long position.The idea behind Merck Company and Invesco SP 500 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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