Correlation Between Merck and Royal Bank
Can any of the company-specific risk be diversified away by investing in both Merck and Royal Bank 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 Royal Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Royal Bank of, you can compare the effects of market volatilities on Merck and Royal Bank 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 Royal Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Royal Bank.
Diversification Opportunities for Merck and Royal Bank
-0.48 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Merck and Royal is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Royal Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Bank 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 Royal Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Bank has no effect on the direction of Merck i.e., Merck and Royal Bank go up and down completely randomly.
Pair Corralation between Merck and Royal Bank
Considering the 90-day investment horizon Merck Company is expected to under-perform the Royal Bank. In addition to that, Merck is 1.44 times more volatile than Royal Bank of. It trades about -0.16 of its total potential returns per unit of risk. Royal Bank of is currently generating about 0.09 per unit of volatility. If you would invest 11,985 in Royal Bank of on September 3, 2024 and sell it today you would earn a total of 582.00 from holding Royal Bank of or generate 4.86% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Merck Company vs. Royal Bank of
Performance |
Timeline |
Merck Company |
Royal Bank |
Merck and Royal Bank Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Merck and Royal Bank
The main advantage of trading using opposite Merck and Royal Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Royal Bank 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 Royal Bank will offset losses from the drop in Royal Bank's long position.Merck vs. Pfizer Inc | Merck vs. Johnson Johnson | Merck vs. Highway Holdings Limited | Merck vs. QCR Holdings |
Royal Bank vs. Partner Communications | Royal Bank vs. Merck Company | Royal Bank vs. Western Midstream Partners | Royal Bank vs. Edgewise Therapeutics |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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