Correlation Between Credit Acceptance and Merck

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

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

Diversification Opportunities for Credit Acceptance and Merck

0.0

Correlation Coefficient

Credit Acceptance  Merck

Pay attention - limited upside

The 3 months correlation between Credit and Merck is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Credit Acceptance and Merck Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck and Credit Acceptance 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 Credit Acceptance 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 has no effect on the direction of Credit Acceptance i.e., Credit Acceptance and Merck go up and down completely randomly.

Pair Corralation between Credit Acceptance and Merck

Assuming the 90 days trading horizon Credit Acceptance is expected to generate 0.98 times more return on investment than Merck. However, Credit Acceptance is 1.02 times less risky than Merck. It trades about 0.07 of its potential returns per unit of risk. Merck Co is currently generating about 0.02 per unit of risk. If you would invest  20,300  in Credit Acceptance on October 11, 2024 and sell it today you would earn a total of  12,200  from holding Credit Acceptance or generate 60.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	98.79%
Values	Daily Returns

Credit Acceptance  vs.  Merck Co

Credit Acceptance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Credit Acceptance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Credit Acceptance is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Merck

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merck Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Merck is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Credit Acceptance and Merck

The main advantage of trading using opposite Credit Acceptance and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Credit Acceptance 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 Credit Acceptance and Merck Co 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.