Correlation Between AMERICAN and Merck
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By analyzing existing cross correlation between AMERICAN HOMES 4 and Merck Company, you can compare the effects of market volatilities on AMERICAN and Merck 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 AMERICAN with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of AMERICAN and Merck.
Diversification Opportunities for AMERICAN and Merck
Poor diversification
The 3 months correlation between AMERICAN and Merck is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding AMERICAN HOMES 4 and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and AMERICAN 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 AMERICAN HOMES 4 are associated (or correlated) with Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of AMERICAN i.e., AMERICAN and Merck go up and down completely randomly.
Pair Corralation between AMERICAN and Merck
Assuming the 90 days trading horizon AMERICAN HOMES 4 is expected to under-perform the Merck. But the bond apears to be less risky and, when comparing its historical volatility, AMERICAN HOMES 4 is 1.87 times less risky than Merck. The bond trades about -0.15 of its potential returns per unit of risk. The Merck Company is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest 10,187 in Merck Company on September 3, 2024 and sell it today you would lose (23.00) from holding Merck Company or give up 0.23% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.0% |
| Values | Daily Returns |
AMERICAN HOMES 4 vs. Merck Company
Performance |
| Timeline |
| AMERICAN HOMES 4 |
| Merck Company |
AMERICAN and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with AMERICAN and Merck
The main advantage of trading using opposite AMERICAN and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AMERICAN position performs unexpectedly, Merck 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 Merck will offset losses from the drop in Merck's long position.| AMERICAN vs. AEP TEX INC | AMERICAN vs. US BANK NATIONAL | AMERICAN vs. Jackson Financial | AMERICAN vs. MetLife |
| Merck vs. Pfizer Inc | Merck vs. Johnson Johnson | Merck vs. Highway Holdings Limited | Merck vs. QCR Holdings |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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