Correlation Between Intel and Merck

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

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

Diversification Opportunities for Intel and Merck

-0.71

Correlation Coefficient

Intel  Merck

Pay attention - limited upside

The 3 months correlation between Intel and Merck is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Intel and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Intel 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 Intel 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 Intel i.e., Intel and Merck go up and down completely randomly.

Pair Corralation between Intel and Merck

Assuming the 90 days trading horizon Intel is expected to generate 2.01 times more return on investment than Merck. However, Intel is 2.01 times more volatile than Merck Company. It trades about 0.05 of its potential returns per unit of risk. Merck Company is currently generating about -0.09 per unit of risk. If you would invest  37,505  in Intel on September 12, 2024 and sell it today you would earn a total of  2,920  from holding Intel or generate 7.79% return on investment over 90 days.

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

Intel  vs.  Merck Company

Intel

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Intel are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Intel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 weak performance, the Stock's forward-looking signals remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Intel and Merck

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

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.