Correlation Between Ready Capital and Merrill Lynch

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

By analyzing existing cross correlation between Ready Capital and Merrill Lynch Depositor, you can compare the effects of market volatilities on Ready Capital and Merrill Lynch 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 Ready Capital with a short position of Merrill Lynch. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ready Capital and Merrill Lynch.

Diversification Opportunities for Ready Capital and Merrill Lynch

-0.71

Correlation Coefficient

Ready Capital  Merrill Lynch

Pay attention - limited upside

The 3 months correlation between Ready and Merrill is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Ready Capital and Merrill Lynch Depositor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merrill Lynch Depositor and Ready Capital 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 Ready Capital are associated (or correlated) with Merrill Lynch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merrill Lynch Depositor has no effect on the direction of Ready Capital i.e., Ready Capital and Merrill Lynch go up and down completely randomly.

Pair Corralation between Ready Capital and Merrill Lynch

Considering the 90-day investment horizon Ready Capital is expected to generate 3.03 times less return on investment than Merrill Lynch. But when comparing it to its historical volatility, Ready Capital is 5.01 times less risky than Merrill Lynch. It trades about 0.04 of its potential returns per unit of risk. Merrill Lynch Depositor is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,227  in Merrill Lynch Depositor on September 20, 2024 and sell it today you would earn a total of  293.00  from holding Merrill Lynch Depositor or generate 13.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	93.74%
Values	Daily Returns

Ready Capital  vs.  Merrill Lynch Depositor

Ready Capital

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ready Capital are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Ready Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Merrill Lynch Depositor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merrill Lynch Depositor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Merrill Lynch is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ready Capital and Merrill Lynch

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

The idea behind Ready Capital and Merrill Lynch Depositor 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.

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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.