Correlation Between Merck and RiverFront Strategic
Can any of the company-specific risk be diversified away by investing in both Merck and RiverFront Strategic 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 RiverFront Strategic into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and RiverFront Strategic Income, you can compare the effects of market volatilities on Merck and RiverFront Strategic 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 RiverFront Strategic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and RiverFront Strategic.
Diversification Opportunities for Merck and RiverFront Strategic
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Merck and RiverFront is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and RiverFront Strategic Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RiverFront Strategic 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 RiverFront Strategic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RiverFront Strategic has no effect on the direction of Merck i.e., Merck and RiverFront Strategic go up and down completely randomly.
Pair Corralation between Merck and RiverFront Strategic
Considering the 90-day investment horizon Merck Company is expected to under-perform the RiverFront Strategic. In addition to that, Merck is 3.34 times more volatile than RiverFront Strategic Income. It trades about -0.11 of its total potential returns per unit of risk. RiverFront Strategic Income is currently generating about 0.08 per unit of volatility. If you would invest 2,222 in RiverFront Strategic Income on September 1, 2024 and sell it today you would earn a total of 98.00 from holding RiverFront Strategic Income or generate 4.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.21% |
| Values | Daily Returns |
Merck Company vs. RiverFront Strategic Income
Performance |
| Timeline |
| Merck Company |
| RiverFront Strategic |
Merck and RiverFront Strategic Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and RiverFront Strategic
The main advantage of trading using opposite Merck and RiverFront Strategic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, RiverFront Strategic 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 RiverFront Strategic will offset losses from the drop in RiverFront Strategic's long position.The idea behind Merck Company and RiverFront Strategic Income 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.| RiverFront Strategic vs. FlexShares Ready Access | RiverFront Strategic vs. RiverFront Dynamic Core | RiverFront Strategic vs. Invesco Global Short | RiverFront Strategic vs. RiverFront Dynamic Dividend |
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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