Correlation Between Merck and Casio Computer

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

By analyzing existing cross correlation between Merck Co and Casio Computer CoLtd, you can compare the effects of market volatilities on Merck and Casio Computer 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 Casio Computer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Casio Computer.

Diversification Opportunities for Merck and Casio Computer

-0.2

Correlation Coefficient

Merck  Casio Computer

Good diversification

The 3 months correlation between Merck and Casio is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Merck Co and Casio Computer CoLtd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Casio Computer CoLtd 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 Co are associated (or correlated) with Casio Computer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Casio Computer CoLtd has no effect on the direction of Merck i.e., Merck and Casio Computer go up and down completely randomly.

Pair Corralation between Merck and Casio Computer

Assuming the 90 days trading horizon Merck Co is expected to under-perform the Casio Computer. In addition to that, Merck is 1.7 times more volatile than Casio Computer CoLtd. It trades about -0.06 of its total potential returns per unit of risk. Casio Computer CoLtd is currently generating about -0.06 per unit of volatility. If you would invest  785.00  in Casio Computer CoLtd on December 20, 2024 and sell it today you would lose (35.00) from holding Casio Computer CoLtd or give up 4.46% of portfolio value over 90 days.

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

Merck Co  vs.  Casio Computer CoLtd

Merck

Risk-Adjusted Performance

Very Weak

Over the last 90 days Merck Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's forward-looking signals remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Casio Computer CoLtd

Risk-Adjusted Performance

Very Weak

Over the last 90 days Casio Computer CoLtd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Casio Computer is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Merck and Casio Computer

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

The idea behind Merck Co and Casio Computer CoLtd 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.