Correlation Between Merck and Xinjiang Goldwind
Can any of the company-specific risk be diversified away by investing in both Merck and Xinjiang Goldwind 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 Xinjiang Goldwind into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Xinjiang Goldwind Science, you can compare the effects of market volatilities on Merck and Xinjiang Goldwind 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 Xinjiang Goldwind. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Xinjiang Goldwind.
Diversification Opportunities for Merck and Xinjiang Goldwind
-0.81 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Merck and Xinjiang is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Xinjiang Goldwind Science in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xinjiang Goldwind Science 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 Xinjiang Goldwind. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xinjiang Goldwind Science has no effect on the direction of Merck i.e., Merck and Xinjiang Goldwind go up and down completely randomly.
Pair Corralation between Merck and Xinjiang Goldwind
Considering the 90-day investment horizon Merck Company is expected to generate 0.54 times more return on investment than Xinjiang Goldwind. However, Merck Company is 1.84 times less risky than Xinjiang Goldwind. It trades about -0.02 of its potential returns per unit of risk. Xinjiang Goldwind Science is currently generating about -0.09 per unit of risk. If you would invest 10,232 in Merck Company on September 1, 2024 and sell it today you would lose (68.00) from holding Merck Company or give up 0.66% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Xinjiang Goldwind Science
Performance |
| Timeline |
| Merck Company |
| Xinjiang Goldwind Science |
Merck and Xinjiang Goldwind Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Xinjiang Goldwind
The main advantage of trading using opposite Merck and Xinjiang Goldwind positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Xinjiang Goldwind 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 Xinjiang Goldwind will offset losses from the drop in Xinjiang Goldwind's long position.The idea behind Merck Company and Xinjiang Goldwind Science 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.| Xinjiang Goldwind vs. Shanghai Electric Group | Xinjiang Goldwind vs. American Superconductor | Xinjiang Goldwind vs. Cummins |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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