Correlation Between Merck and ToughBuilt Industries
Can any of the company-specific risk be diversified away by investing in both Merck and ToughBuilt Industries 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 ToughBuilt Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and ToughBuilt Industries WT, you can compare the effects of market volatilities on Merck and ToughBuilt Industries 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 ToughBuilt Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and ToughBuilt Industries.
Diversification Opportunities for Merck and ToughBuilt Industries
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Merck and ToughBuilt is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and ToughBuilt Industries WT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ToughBuilt Industries 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 ToughBuilt Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ToughBuilt Industries has no effect on the direction of Merck i.e., Merck and ToughBuilt Industries go up and down completely randomly.
Pair Corralation between Merck and ToughBuilt Industries
If you would invest 10,120 in Merck Company on September 2, 2024 and sell it today you would earn a total of 44.00 from holding Merck Company or generate 0.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 0.4% |
| Values | Daily Returns |
Merck Company vs. ToughBuilt Industries WT
Performance |
| Timeline |
| Merck Company |
| ToughBuilt Industries |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Merck and ToughBuilt Industries Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and ToughBuilt Industries
The main advantage of trading using opposite Merck and ToughBuilt Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, ToughBuilt Industries 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 ToughBuilt Industries will offset losses from the drop in ToughBuilt Industries' long position.The idea behind Merck Company and ToughBuilt Industries WT 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.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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