Correlation Between Merck and Renewal Fuels
Can any of the company-specific risk be diversified away by investing in both Merck and Renewal Fuels 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 Renewal Fuels into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Renewal Fuels, you can compare the effects of market volatilities on Merck and Renewal Fuels 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 Renewal Fuels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Renewal Fuels.
Diversification Opportunities for Merck and Renewal Fuels
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Merck and Renewal is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Renewal Fuels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Renewal Fuels 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 Renewal Fuels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Renewal Fuels has no effect on the direction of Merck i.e., Merck and Renewal Fuels go up and down completely randomly.
Pair Corralation between Merck and Renewal Fuels
Considering the 90-day investment horizon Merck Company is expected to generate 0.24 times more return on investment than Renewal Fuels. However, Merck Company is 4.16 times less risky than Renewal Fuels. It trades about 0.0 of its potential returns per unit of risk. Renewal Fuels is currently generating about -0.05 per unit of risk. If you would invest 10,641 in Merck Company on September 1, 2024 and sell it today you would lose (477.00) from holding Merck Company or give up 4.48% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.73% |
| Values | Daily Returns |
Merck Company vs. Renewal Fuels
Performance |
| Timeline |
| Merck Company |
| Renewal Fuels |
Merck and Renewal Fuels Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Renewal Fuels
The main advantage of trading using opposite Merck and Renewal Fuels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Renewal Fuels 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 Renewal Fuels will offset losses from the drop in Renewal Fuels' long position.The idea behind Merck Company and Renewal Fuels 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.| Renewal Fuels vs. C Bond Systems | Renewal Fuels vs. Lhyfe SA | Renewal Fuels vs. Industrial Nanotech | Renewal Fuels vs. CN Energy Group |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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