Correlation Between CITY OFFICE and Merck

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

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

Diversification Opportunities for CITY OFFICE and Merck

0.42

Correlation Coefficient

CITY OFFICE  Merck

Very weak diversification

The 3 months correlation between CITY and Merck is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding CITY OFFICE REIT and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and CITY OFFICE 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 CITY OFFICE REIT 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 CITY OFFICE i.e., CITY OFFICE and Merck go up and down completely randomly.

Pair Corralation between CITY OFFICE and Merck

Assuming the 90 days horizon CITY OFFICE REIT is expected to under-perform the Merck. In addition to that, CITY OFFICE is 1.76 times more volatile than Merck Company. It trades about -0.05 of its total potential returns per unit of risk. Merck Company is currently generating about -0.01 per unit of volatility. If you would invest  13,830  in Merck Company on December 19, 2024 and sell it today you would lose (210.00) from holding Merck Company or give up 1.52% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

CITY OFFICE REIT  vs.  Merck Company

CITY OFFICE REIT

Risk-Adjusted Performance

Very Weak

Over the last 90 days CITY OFFICE REIT has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Merck Company

Risk-Adjusted Performance

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 rather sound forward-looking signals, Merck is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with CITY OFFICE and Merck

The main advantage of trading using opposite CITY OFFICE and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CITY OFFICE 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 CITY OFFICE REIT 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.