Correlation Between Merck and Themes Small
Can any of the company-specific risk be diversified away by investing in both Merck and Themes Small 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 Themes Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Themes Small Cap, you can compare the effects of market volatilities on Merck and Themes Small 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 Themes Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Themes Small.
Diversification Opportunities for Merck and Themes Small
-0.75 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Merck and Themes is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Themes Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Themes Small Cap 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 Themes Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Themes Small Cap has no effect on the direction of Merck i.e., Merck and Themes Small go up and down completely randomly.
Pair Corralation between Merck and Themes Small
Considering the 90-day investment horizon Merck Company is expected to under-perform the Themes Small. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.15 times less risky than Themes Small. The stock trades about -0.02 of its potential returns per unit of risk. The Themes Small Cap is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest 3,068 in Themes Small Cap on September 1, 2024 and sell it today you would earn a total of 347.00 from holding Themes Small Cap or generate 11.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Merck Company vs. Themes Small Cap
Performance |
| Timeline |
| Merck Company |
| Themes Small Cap |
Merck and Themes Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Themes Small
The main advantage of trading using opposite Merck and Themes Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Themes Small 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 Themes Small will offset losses from the drop in Themes Small's long position.The idea behind Merck Company and Themes Small Cap 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.| Themes Small vs. Dimensional ETF Trust | Themes Small vs. Vanguard Small Cap Index | Themes Small vs. First Trust Multi Manager | Themes Small vs. Vanguard SP Small Cap |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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