Correlation Between GameStop Corp and Merck

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

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

Diversification Opportunities for GameStop Corp and Merck

-0.48

Correlation Coefficient

GameStop Corp  Merck

Very good diversification

The 3 months correlation between GameStop and Merck is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding GameStop Corp and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and GameStop 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 GameStop 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 GameStop Corp i.e., GameStop Corp and Merck go up and down completely randomly.

Pair Corralation between GameStop Corp and Merck

Assuming the 90 days trading horizon GameStop Corp is expected to generate 4.82 times more return on investment than Merck. However, GameStop Corp is 4.82 times more volatile than Merck Company. It trades about 0.04 of its potential returns per unit of risk. Merck Company is currently generating about -0.02 per unit of risk. If you would invest  2,260  in GameStop Corp on October 26, 2024 and sell it today you would earn a total of  438.00  from holding GameStop Corp or generate 19.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

GameStop Corp  vs.  Merck Company

GameStop Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GameStop Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, GameStop Corp reported solid returns over the last few months and may actually be approaching a breakup point.

Merck Company

Risk-Adjusted Performance

0 of 100

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 latest uncertain performance, the Stock's forward-looking signals remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with GameStop Corp and Merck

The main advantage of trading using opposite GameStop Corp and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GameStop 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 GameStop 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .