Correlation Between Merck and Motley Fool
Can any of the company-specific risk be diversified away by investing in both Merck and Motley Fool 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 Motley Fool into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Motley Fool Next, you can compare the effects of market volatilities on Merck and Motley Fool 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 Motley Fool. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Motley Fool.
Diversification Opportunities for Merck and Motley Fool
-0.12 | Correlation Coefficient |
Good diversification
The 3 months correlation between Merck and Motley is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Motley Fool Next in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Motley Fool Next 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 Motley Fool. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Motley Fool Next has no effect on the direction of Merck i.e., Merck and Motley Fool go up and down completely randomly.
Pair Corralation between Merck and Motley Fool
Considering the 90-day investment horizon Merck Company is expected to under-perform the Motley Fool. In addition to that, Merck is 1.22 times more volatile than Motley Fool Next. It trades about -0.01 of its total potential returns per unit of risk. Motley Fool Next is currently generating about 0.06 per unit of volatility. If you would invest 1,454 in Motley Fool Next on December 5, 2024 and sell it today you would earn a total of 457.00 from holding Motley Fool Next or generate 31.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Motley Fool Next
Performance |
| Timeline |
| Merck Company |
| Motley Fool Next |
Merck and Motley Fool Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Motley Fool
The main advantage of trading using opposite Merck and Motley Fool positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Motley Fool 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 Motley Fool will offset losses from the drop in Motley Fool's long position.The idea behind Merck Company and Motley Fool Next 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.| Motley Fool vs. Strategy Shares | ||
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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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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