Correlation Between Hilton Worldwide and Merck

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

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

Diversification Opportunities for Hilton Worldwide and Merck

-0.58

Correlation Coefficient

Hilton Worldwide  Merck

Excellent diversification

The 3 months correlation between Hilton and Merck is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Hilton Worldwide Holdings and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Hilton Worldwide 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 Hilton Worldwide Holdings 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 Hilton Worldwide i.e., Hilton Worldwide and Merck go up and down completely randomly.

Pair Corralation between Hilton Worldwide and Merck

Considering the 90-day investment horizon Hilton Worldwide Holdings is expected to generate 0.87 times more return on investment than Merck. However, Hilton Worldwide Holdings is 1.15 times less risky than Merck. It trades about -0.06 of its potential returns per unit of risk. Merck Company is currently generating about -0.1 per unit of risk. If you would invest  24,980  in Hilton Worldwide Holdings on December 27, 2024 and sell it today you would lose (1,494) from holding Hilton Worldwide Holdings or give up 5.98% of portfolio value over 90 days.

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

Hilton Worldwide Holdings  vs.  Merck Company

Hilton Worldwide Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hilton Worldwide Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, Hilton Worldwide is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

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 abnormal 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 Hilton Worldwide and Merck

The main advantage of trading using opposite Hilton Worldwide and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hilton Worldwide 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 Hilton Worldwide Holdings 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.