Correlation Between Merck and Templeton Dragon
Can any of the company-specific risk be diversified away by investing in both Merck and Templeton Dragon 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 Templeton Dragon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Templeton Dragon Closed, you can compare the effects of market volatilities on Merck and Templeton Dragon 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 Templeton Dragon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Templeton Dragon.
Diversification Opportunities for Merck and Templeton Dragon
-0.51 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Merck and Templeton is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Templeton Dragon Closed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Templeton Dragon Closed 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 Templeton Dragon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Templeton Dragon Closed has no effect on the direction of Merck i.e., Merck and Templeton Dragon go up and down completely randomly.
Pair Corralation between Merck and Templeton Dragon
Considering the 90-day investment horizon Merck Company is expected to generate 0.68 times more return on investment than Templeton Dragon. However, Merck Company is 1.47 times less risky than Templeton Dragon. It trades about -0.1 of its potential returns per unit of risk. Templeton Dragon Closed is currently generating about -0.19 per unit of risk. If you would invest 10,423 in Merck Company on August 28, 2024 and sell it today you would lose (307.00) from holding Merck Company or give up 2.95% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Templeton Dragon Closed
Performance |
| Timeline |
| Merck Company |
| Templeton Dragon Closed |
Merck and Templeton Dragon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Templeton Dragon
The main advantage of trading using opposite Merck and Templeton Dragon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Templeton Dragon 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 Templeton Dragon will offset losses from the drop in Templeton Dragon's long position.| Merck vs. Capricor Therapeutics | Merck vs. Soleno Therapeutics | Merck vs. Bio Path Holdings | Merck vs. Moleculin Biotech |
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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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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