Correlation Between Rydex Series and Merck

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

Diversification Opportunities for Rydex Series and Merck

-0.33
  Correlation Coefficient

Very good diversification

The 3 months correlation between Rydex and Merck is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Rydex Series Fds and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Rydex Series 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 Rydex Series Fds 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 Rydex Series i.e., Rydex Series and Merck go up and down completely randomly.

Pair Corralation between Rydex Series and Merck

Assuming the 90 days horizon Rydex Series Fds is expected to generate 0.23 times more return on investment than Merck. However, Rydex Series Fds is 4.32 times less risky than Merck. It trades about -0.09 of its potential returns per unit of risk. Merck Company is currently generating about -0.2 per unit of risk. If you would invest  2,724  in Rydex Series Fds on May 11, 2022 and sell it today you would lose (14.00)  from holding Rydex Series Fds or give up 0.51% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Rydex Series Fds  vs.  Merck Company

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

Rydex Price Channel

Merck Company 
Merck Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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

Rydex Series and Merck Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Rydex Series and Merck

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

Rydex Series Fds

Pair trading matchups for Rydex Series

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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 Rydex Series 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. Rydex Series' 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, Rydex Series' 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 Rydex Series Fds.
The idea behind Rydex Series Fds 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 Stock Screener module to find equities using custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..

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