Correlation Between Salesforce and Merck

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

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

Diversification Opportunities for Salesforce and Merck

-0.33

Correlation Coefficient

Salesforce  Merck

Very good diversification

The 3 months correlation between Salesforce and Merck is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Salesforce and Merck Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck and Salesforce 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 Salesforce 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 Salesforce i.e., Salesforce and Merck go up and down completely randomly.

Pair Corralation between Salesforce and Merck

Considering the 90-day investment horizon Salesforce is expected to generate 1.82 times more return on investment than Merck. However, Salesforce is 1.82 times more volatile than Merck Co. It trades about 0.11 of its potential returns per unit of risk. Merck Co is currently generating about -0.02 per unit of risk. If you would invest  29,124  in Salesforce on October 8, 2024 and sell it today you would earn a total of  4,166  from holding Salesforce or generate 14.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.77%
Values	Daily Returns

Salesforce  vs.  Merck Co

Salesforce

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Salesforce are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Salesforce displayed solid returns over the last few months and may actually be approaching a breakup point.

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. In spite of very healthy forward-looking signals, Merck is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Salesforce and Merck

The main advantage of trading using opposite Salesforce and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Salesforce 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 Salesforce 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.

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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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.