Correlation Between One Choice and Merck

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Can any of the company-specific risk be diversified away by investing in both One Choice 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 One Choice and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between One Choice Blend and Merck Company, you can compare the effects of market volatilities on One Choice 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 One Choice with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of One Choice and Merck.

Diversification Opportunities for One Choice and Merck

-0.15
  Correlation Coefficient

Good diversification

The 3 months correlation between AAAOX and Merck is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding One Choice Blend and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and One Choice 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 One Choice Blend 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 One Choice i.e., One Choice and Merck go up and down completely randomly.

Pair Corralation between One Choice and Merck

Assuming the 90 days horizon One Choice Blend is expected to under-perform the Merck. But the mutual fund apears to be less risky and, when comparing its historical volatility, One Choice Blend is 1.81 times less risky than Merck. The mutual fund trades about -0.03 of its potential returns per unit of risk. The Merck Company is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  8,553  in Merck Company on May 21, 2022 and sell it today you would earn a total of  587.00  from holding Merck Company or generate 6.86% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy98.81%
ValuesDaily Returns

One Choice Blend  vs.  Merck Company

 Performance (%) 
       Timeline  
One Choice Blend 
AAAOX Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in One Choice Blend are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, One Choice is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

AAAOX Price Channel

Merck Company 
Merck Performance
0 of 100
Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Merck is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Merck Price Channel

One Choice and Merck Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with One Choice and Merck

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

One Choice Blend

Pair trading matchups for One Choice

The idea behind One Choice Blend 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.
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 Global Correlations module to find global opportunities by holding instruments from different markets.

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