Correlation Between Lumen Technologies and Merck

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

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

Diversification Opportunities for Lumen Technologies and Merck

0.7

Correlation Coefficient

Lumen Technologies  Merck

Poor diversification

The 3 months correlation between Lumen and Merck is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Lumen Technologies and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Lumen Technologies 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 Lumen Technologies 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 Lumen Technologies i.e., Lumen Technologies and Merck go up and down completely randomly.

Pair Corralation between Lumen Technologies and Merck

Given the investment horizon of 90 days Lumen Technologies is expected to under-perform the Merck. In addition to that, Lumen Technologies is 2.25 times more volatile than Merck Company. It trades about -0.07 of its total potential returns per unit of risk. Merck Company is currently generating about -0.1 per unit of volatility. If you would invest  9,885  in Merck Company on December 27, 2024 and sell it today you would lose (1,074) from holding Merck Company or give up 10.86% of portfolio value over 90 days.

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

Lumen Technologies  vs.  Merck Company

Lumen Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lumen Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm 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 Lumen Technologies and Merck

The main advantage of trading using opposite Lumen Technologies and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lumen Technologies 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 Lumen Technologies 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.