Correlation Between ETFMG Prime and Merck

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

Diversification Opportunities for ETFMG Prime and Merck

0.13
  Correlation Coefficient

Average diversification

The 3 months correlation between ETFMG and Merck is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding ETFMG Prime Cyber and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and ETFMG Prime 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 ETFMG Prime Cyber 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 ETFMG Prime i.e., ETFMG Prime and Merck go up and down completely randomly.

Pair Corralation between ETFMG Prime and Merck

Given the investment horizon of 90 days ETFMG Prime is expected to generate 1.2 times less return on investment than Merck. In addition to that, ETFMG Prime is 1.37 times more volatile than Merck Company. It trades about 0.17 of its total potential returns per unit of risk. Merck Company is currently generating about 0.28 per unit of volatility. If you would invest  10,159  in Merck Company on September 10, 2022 and sell it today you would earn a total of  853.00  from holding Merck Company or generate 8.4% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

ETFMG Prime Cyber  vs.  Merck Company

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

ETFMG Price Channel

Merck Company 
Merck Performance
21 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 21 (%) 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

ETFMG Prime and Merck Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with ETFMG Prime and Merck

The main advantage of trading using opposite ETFMG Prime and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ETFMG Prime 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.
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against ETFMG Prime as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. ETFMG Prime's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, ETFMG Prime's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to ETFMG Prime Cyber.
The idea behind ETFMG Prime Cyber 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.

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