Correlation Between Chevron Corp and Merck

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

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

Diversification Opportunities for Chevron Corp and Merck

-0.43

Correlation Coefficient

Chevron Corp  Merck

Very good diversification

The 3 months correlation between Chevron and Merck is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Chevron Corp and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Chevron Corp 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 Chevron Corp 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 Chevron Corp i.e., Chevron Corp and Merck go up and down completely randomly.

Pair Corralation between Chevron Corp and Merck

Considering the 90-day investment horizon Chevron Corp is expected to generate 0.73 times more return on investment than Merck. However, Chevron Corp is 1.36 times less risky than Merck. It trades about 0.21 of its potential returns per unit of risk. Merck Company is currently generating about -0.08 per unit of risk. If you would invest  14,150  in Chevron Corp on December 28, 2024 and sell it today you would earn a total of  2,515  from holding Chevron Corp or generate 17.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Chevron Corp  vs.  Merck Company

Chevron Corp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron Corp are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Chevron Corp showed solid returns over the last few months and may actually be approaching a breakup point.

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. Despite latest uncertain performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Chevron Corp and Merck

The main advantage of trading using opposite Chevron Corp and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chevron Corp 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 Chevron Corp 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.