Correlation Between Daito Trust and Merck

Can any of the company-specific risk be diversified away by investing in both Daito Trust 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 Daito Trust and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Daito Trust Construction and Merck Company, you can compare the effects of market volatilities on Daito Trust 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 Daito Trust with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daito Trust and Merck.

Diversification Opportunities for Daito Trust and Merck

-0.55

Correlation Coefficient

Daito Trust  Merck

Excellent diversification

The 3 months correlation between Daito and Merck is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Daito Trust Construction and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Daito Trust 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 Daito Trust Construction 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 Daito Trust i.e., Daito Trust and Merck go up and down completely randomly.

Pair Corralation between Daito Trust and Merck

Assuming the 90 days horizon Daito Trust Construction is expected to under-perform the Merck. In addition to that, Daito Trust is 1.03 times more volatile than Merck Company. It trades about -0.04 of its total potential returns per unit of risk. Merck Company is currently generating about 0.17 per unit of volatility. If you would invest  14,045  in Merck Company on October 10, 2024 and sell it today you would earn a total of  455.00  from holding Merck Company or generate 3.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Daito Trust Construction  vs.  Merck Company

Daito Trust Construction

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Daito Trust Construction are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Daito Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Merck Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Daito Trust and Merck

The main advantage of trading using opposite Daito Trust and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Daito Trust 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.

The idea behind Daito Trust Construction and Merck Company 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.

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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.