Correlation Between Alleghany and Merck
Can any of the company-specific risk be diversified away by investing in both Alleghany and Merck 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 Alleghany and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alleghany and Merck Company, you can compare the effects of market volatilities on Alleghany 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 Alleghany with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alleghany and Merck.
Diversification Opportunities for Alleghany and Merck
Very weak diversification
The 3 months correlation between Alleghany and Merck is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Alleghany and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Alleghany 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 Alleghany 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 Alleghany i.e., Alleghany and Merck go up and down completely randomly.
Pair Corralation between Alleghany and Merck
Taking into account the 90-day investment horizon Alleghany is expected to generate 2.43 times less return on investment than Merck. But when comparing it to its historical volatility, Alleghany is 5.36 times less risky than Merck. It trades about 0.21 of its potential returns per unit of risk. Merck Company is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 8,276 in Merck Company on January 19, 2024 and sell it today you would earn a total of 4,247 from holding Merck Company or generate 51.32% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 4.58% |
Values | Daily Returns |
Alleghany vs. Merck Company
Performance |
Timeline |
Alleghany |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Merck Company |
Alleghany and Merck Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Alleghany and Merck
The main advantage of trading using opposite Alleghany and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alleghany 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.Alleghany vs. Chester Mining | Alleghany vs. Inflection Point Acquisition | Alleghany vs. Fortress Transp Infra | Alleghany vs. Vestis |
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 AI Investment Finder module to use AI to screen and filter profitable investment opportunities.
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