Correlation Between Merck and Boeing
Can any of the company-specific risk be diversified away by investing in both Merck and Boeing 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 Boeing into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and The Boeing, you can compare the effects of market volatilities on Merck and Boeing 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 Boeing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Boeing.
Diversification Opportunities for Merck and Boeing
Very weak diversification
The 3 months correlation between Merck and Boeing is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and The Boeing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boeing 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 Boeing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boeing has no effect on the direction of Merck i.e., Merck and Boeing go up and down completely randomly.
Pair Corralation between Merck and Boeing
Considering the 90-day investment horizon Merck Company is expected to under-perform the Boeing. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 2.17 times less risky than Boeing. The stock trades about -0.4 of its potential returns per unit of risk. The The Boeing is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 14,937 in The Boeing on August 10, 2024 and sell it today you would earn a total of 161.00 from holding The Boeing or generate 1.08% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Merck Company vs. The Boeing
Performance |
Timeline |
Merck Company |
Boeing |
Merck and Boeing Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Merck and Boeing
The main advantage of trading using opposite Merck and Boeing positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Boeing 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 Boeing will offset losses from the drop in Boeing's long position.Merck vs. LiCycle Holdings Corp | Merck vs. Alcoa Corp | Merck vs. Constellium Nv | Merck vs. China Hongqiao Group |
Boeing vs. Merck Company | Boeing vs. LiCycle Holdings Corp | Boeing vs. Alcoa Corp | Boeing vs. Constellium Nv |
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 Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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