Correlation Between Merck and Templeton Constrained

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

By analyzing existing cross correlation between Merck Company and Templeton Strained Bond, you can compare the effects of market volatilities on Merck and Templeton Constrained 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 Templeton Constrained. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Templeton Constrained.

Diversification Opportunities for Merck and Templeton Constrained

-0.92

Correlation Coefficient

Merck  Templeton Constrained

Pay attention - limited upside

The 3 months correlation between Merck and Templeton is -0.92. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Templeton Strained Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Templeton Strained Bond 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 Templeton Constrained. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Templeton Strained Bond has no effect on the direction of Merck i.e., Merck and Templeton Constrained go up and down completely randomly.

Pair Corralation between Merck and Templeton Constrained

Considering the 90-day investment horizon Merck Company is expected to under-perform the Templeton Constrained. In addition to that, Merck is 20.96 times more volatile than Templeton Strained Bond. It trades about -0.16 of its total potential returns per unit of risk. Templeton Strained Bond is currently generating about 0.7 per unit of volatility. If you would invest  1,013  in Templeton Strained Bond on September 3, 2024 and sell it today you would earn a total of  26.00  from holding Templeton Strained Bond or generate 2.57% return on investment over 90 days.

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

Merck Company  vs.  Templeton Strained Bond

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 unsteady performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Templeton Strained Bond

Risk-Adjusted Performance

54 of 100

Excellent

Compared to the overall equity markets, risk-adjusted returns on investments in Templeton Strained Bond are ranked lower than 54 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Templeton Constrained is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Merck and Templeton Constrained

The main advantage of trading using opposite Merck and Templeton Constrained positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Templeton Constrained 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 Templeton Constrained will offset losses from the drop in Templeton Constrained's long position.

The idea behind Merck Company and Templeton Strained Bond 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.