Correlation Between Merck and Towpath Focus
Can any of the company-specific risk be diversified away by investing in both Merck and Towpath Focus 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 Towpath Focus into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Towpath Focus, you can compare the effects of market volatilities on Merck and Towpath Focus 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 Towpath Focus. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Towpath Focus.
Diversification Opportunities for Merck and Towpath Focus
-0.74 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Merck and Towpath is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Towpath Focus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Towpath Focus 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 Towpath Focus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Towpath Focus has no effect on the direction of Merck i.e., Merck and Towpath Focus go up and down completely randomly.
Pair Corralation between Merck and Towpath Focus
Considering the 90-day investment horizon Merck Company is expected to under-perform the Towpath Focus. In addition to that, Merck is 1.96 times more volatile than Towpath Focus. It trades about -0.02 of its total potential returns per unit of risk. Towpath Focus is currently generating about 0.27 per unit of volatility. If you would invest 1,550 in Towpath Focus on September 1, 2024 and sell it today you would earn a total of 61.00 from holding Towpath Focus or generate 3.94% 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. Towpath Focus
Performance |
| Timeline |
| Merck Company |
| Towpath Focus |
Merck and Towpath Focus Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Towpath Focus
The main advantage of trading using opposite Merck and Towpath Focus positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Towpath Focus 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 Towpath Focus will offset losses from the drop in Towpath Focus' long position.The idea behind Merck Company and Towpath Focus 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.| Towpath Focus vs. Towpath Technology | Towpath Focus vs. Pimco Income Strategy | Towpath Focus vs. Growth Fund Of | Towpath Focus vs. Westwood Largecap Value |
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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