Correlation Between Avantis Short-Term and Merck

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

Diversification Opportunities for Avantis Short-Term and Merck

-0.06
  Correlation Coefficient

Good diversification

The 3 months correlation between Avantis and Merck is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Avantis Short-Term Fixed and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Avantis Short-Term 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 Avantis Short-Term Fixed 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 Avantis Short-Term i.e., Avantis Short-Term and Merck go up and down completely randomly.

Pair Corralation between Avantis Short-Term and Merck

Assuming the 90 days horizon Avantis Short-Term Fixed is expected to under-perform the Merck. But the mutual fund apears to be less risky and, when comparing its historical volatility, Avantis Short-Term Fixed is 8.06 times less risky than Merck. The mutual fund trades about -0.07 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  7,379  in Merck Company on September 6, 2022 and sell it today you would earn a total of  3,625  from holding Merck Company or generate 49.13% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy94.34%
ValuesDaily Returns

Avantis Short-Term Fixed  vs.  Merck Company

 Performance (%) 
       Timeline  
Avantis Short-Term Fixed 
Avantis Performance
0 of 100
Over the last 90 days Avantis Short-Term Fixed has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Avantis Short-Term is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Avantis Price Channel

Merck Company 
Merck Performance
23 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Merck demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Merck Price Channel

Avantis Short-Term and Merck Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Avantis Short-Term and Merck

The main advantage of trading using opposite Avantis Short-Term and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Avantis Short-Term 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.
Avantis Short-Term vs. FT Cboe Vest
Avantis Short-Term vs. VANGUARD SMALL-CAP GROWTH
The idea behind Avantis Short-Term Fixed 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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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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.

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