Correlation Between Marsh McLennan and EHealth
Can any of the company-specific risk be diversified away by investing in both Marsh McLennan and EHealth 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 Marsh McLennan and EHealth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Marsh McLennan Companies and eHealth, you can compare the effects of market volatilities on Marsh McLennan and EHealth 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 Marsh McLennan with a short position of EHealth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Marsh McLennan and EHealth.
Diversification Opportunities for Marsh McLennan and EHealth
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Marsh and EHealth is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Marsh McLennan Companies and eHealth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on eHealth and Marsh McLennan 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 Marsh McLennan Companies are associated (or correlated) with EHealth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of eHealth has no effect on the direction of Marsh McLennan i.e., Marsh McLennan and EHealth go up and down completely randomly.
Pair Corralation between Marsh McLennan and EHealth
Considering the 90-day investment horizon Marsh McLennan Companies is expected to generate 0.2 times more return on investment than EHealth. However, Marsh McLennan Companies is 5.03 times less risky than EHealth. It trades about -0.02 of its potential returns per unit of risk. eHealth is currently generating about -0.09 per unit of risk. If you would invest 20,717 in Marsh McLennan Companies on February 12, 2024 and sell it today you would lose (162.00) from holding Marsh McLennan Companies or give up 0.78% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Marsh McLennan Companies vs. eHealth
Performance |
| Timeline |
| Marsh McLennan Companies |
| eHealth |
Marsh McLennan and EHealth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Marsh McLennan and EHealth
The main advantage of trading using opposite Marsh McLennan and EHealth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Marsh McLennan position performs unexpectedly, EHealth 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 EHealth will offset losses from the drop in EHealth's long position.The idea behind Marsh McLennan Companies and eHealth 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 the Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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