Correlation Between Merck and Transamerica Large
Can any of the company-specific risk be diversified away by investing in both Merck and Transamerica Large 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 Transamerica Large into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Transamerica Large Cap, you can compare the effects of market volatilities on Merck and Transamerica Large 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 Transamerica Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Transamerica Large.
Diversification Opportunities for Merck and Transamerica Large
-0.16 | Correlation Coefficient |
Good diversification
The 3 months correlation between Merck and Transamerica is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Transamerica Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Large 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 Transamerica Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica Large Cap has no effect on the direction of Merck i.e., Merck and Transamerica Large go up and down completely randomly.
Pair Corralation between Merck and Transamerica Large
Considering the 90-day investment horizon Merck Company is expected to under-perform the Transamerica Large. In addition to that, Merck is 4.74 times more volatile than Transamerica Large Cap. It trades about -0.13 of its total potential returns per unit of risk. Transamerica Large Cap is currently generating about -0.19 per unit of volatility. If you would invest 1,528 in Transamerica Large Cap on November 27, 2024 and sell it today you would lose (31.00) from holding Transamerica Large Cap or give up 2.03% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Transamerica Large Cap
Performance |
| Timeline |
| Merck Company |
| Transamerica Large Cap |
Merck and Transamerica Large Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Transamerica Large
The main advantage of trading using opposite Merck and Transamerica Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Transamerica Large 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 Transamerica Large will offset losses from the drop in Transamerica Large's long position.The idea behind Merck Company and Transamerica Large 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.| Transamerica Large vs. Blackrock Diversified Fixed | Transamerica Large vs. Massmutual Premier Diversified | Transamerica Large vs. Elfun Diversified Fund | Transamerica Large vs. Diversified Bond Fund |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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