Correlation Between TERADATA and Merck

Can any of the company-specific risk be diversified away by investing in both TERADATA 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 TERADATA and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between TERADATA and Merck Company, you can compare the effects of market volatilities on TERADATA 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 TERADATA with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of TERADATA and Merck.

Diversification Opportunities for TERADATA and Merck

-0.24

Correlation Coefficient

TERADATA  Merck

Very good diversification

The 3 months correlation between TERADATA and Merck is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding TERADATA and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and TERADATA 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 TERADATA 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 TERADATA i.e., TERADATA and Merck go up and down completely randomly.

Pair Corralation between TERADATA and Merck

Assuming the 90 days trading horizon TERADATA is expected to under-perform the Merck. But the stock apears to be less risky and, when comparing its historical volatility, TERADATA is 1.02 times less risky than Merck. The stock trades about -0.03 of its potential returns per unit of risk. The Merck Company is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  13,750  in Merck Company on October 26, 2024 and sell it today you would earn a total of  655.00  from holding Merck Company or generate 4.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.74%
Values	Daily Returns

TERADATA  vs.  Merck Company

TERADATA

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in TERADATA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, TERADATA is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Merck Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's forward-looking signals remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with TERADATA and Merck

The main advantage of trading using opposite TERADATA and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TERADATA 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 idea behind TERADATA 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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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 Bonds Directory module to find actively traded corporate debentures issued by US companies.