Correlation Between Merck and Western Capital
Can any of the company-specific risk be diversified away by investing in both Merck and Western Capital 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 Western Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Western Capital Resources, you can compare the effects of market volatilities on Merck and Western Capital 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 Western Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Western Capital.
Diversification Opportunities for Merck and Western Capital
-0.59 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Merck and Western is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Western Capital Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Capital Resources 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 Western Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Capital Resources has no effect on the direction of Merck i.e., Merck and Western Capital go up and down completely randomly.
Pair Corralation between Merck and Western Capital
Considering the 90-day investment horizon Merck Company is expected to under-perform the Western Capital. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.64 times less risky than Western Capital. The stock trades about 0.0 of its potential returns per unit of risk. The Western Capital Resources is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest 795.00 in Western Capital Resources on September 2, 2024 and sell it today you would earn a total of 133.00 from holding Western Capital Resources or generate 16.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Western Capital Resources
Performance |
| Timeline |
| Merck Company |
| Western Capital Resources |
Merck and Western Capital Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Western Capital
The main advantage of trading using opposite Merck and Western Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Western Capital 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 Western Capital will offset losses from the drop in Western Capital's long position.The idea behind Merck Company and Western Capital Resources 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.| Western Capital vs. Porsche Automobile Holding | Western Capital vs. Ferrari NV | Western Capital vs. Toyota Motor | Western Capital vs. General Motors |
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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