Correlation Between Merck and BRADESCO

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

Diversification Opportunities for Merck and BRADESCO

-0.22
  Correlation Coefficient

Very good diversification

The 3 months correlation between Merck and BRADESCO is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and BRADESCO PN EJ N1 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BRADESCO PN EJ 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 BRADESCO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BRADESCO PN EJ has no effect on the direction of Merck i.e., Merck and BRADESCO go up and down completely randomly.

Pair Corralation between Merck and BRADESCO

Considering the 90-day investment horizon Merck Company is expected to generate 0.76 times more return on investment than BRADESCO. However, Merck Company is 1.32 times less risky than BRADESCO. It trades about 0.07 of its potential returns per unit of risk. BRADESCO PN EJ is currently generating about 0.02 per unit of risk. If you would invest  8,001  in Merck Company on May 14, 2022 and sell it today you would earn a total of  1,064  from holding Merck Company or generate 13.3% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Merck Company  vs.  BRADESCO PN EJ N1

 Performance (%) 
       Timeline  
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

BRADESCO PN EJ 
BRADESCO Performance
0 of 100
Over the last 90 days BRADESCO PN EJ has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, BRADESCO is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

BRADESCO Price Channel

Merck and BRADESCO Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merck and BRADESCO

The main advantage of trading using opposite Merck and BRADESCO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, BRADESCO 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 BRADESCO will offset losses from the drop in BRADESCO's long position.
The idea behind Merck Company and BRADESCO PN EJ 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.

BRADESCO PN EJ

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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 BRADESCO 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. BRADESCO'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, BRADESCO'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 BRADESCO PN EJ.
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.

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