Correlation Between Merck and Royce Total
Can any of the company-specific risk be diversified away by investing in both Merck and Royce Total 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 Royce Total into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Royce Total Return, you can compare the effects of market volatilities on Merck and Royce Total 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 Royce Total. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Royce Total.
Diversification Opportunities for Merck and Royce Total
-0.75 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Merck and Royce is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Royce Total Return in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royce Total Return 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 Royce Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royce Total Return has no effect on the direction of Merck i.e., Merck and Royce Total go up and down completely randomly.
Pair Corralation between Merck and Royce Total
Considering the 90-day investment horizon Merck Company is expected to under-perform the Royce Total. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.09 times less risky than Royce Total. The stock trades about -0.18 of its potential returns per unit of risk. The Royce Total Return is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 799.00 in Royce Total Return on August 28, 2024 and sell it today you would earn a total of 99.00 from holding Royce Total Return or generate 12.39% 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. Royce Total Return
Performance |
| Timeline |
| Merck Company |
| Royce Total Return |
Merck and Royce Total Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Royce Total
The main advantage of trading using opposite Merck and Royce Total positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Royce Total 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 Royce Total will offset losses from the drop in Royce Total's long position.| Merck vs. Capricor Therapeutics | Merck vs. Soleno Therapeutics | Merck vs. Bio Path Holdings | Merck vs. Moleculin Biotech |
| Royce Total vs. Royce Premier Fund | Royce Total vs. Aquagold International | Royce Total vs. Morningstar Unconstrained Allocation | Royce Total vs. Thrivent High Yield |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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