Correlation Between Merck and Bread Financial

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

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

Diversification Opportunities for Merck and Bread Financial

0.04

Correlation Coefficient

Merck  Bread Financial

Significant diversification

The 3 months correlation between Merck and Bread is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Merck Co and Bread Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bread Financial Holdings and Merck 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 Merck Co are associated (or correlated) with Bread Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bread Financial Holdings has no effect on the direction of Merck i.e., Merck and Bread Financial go up and down completely randomly.

Pair Corralation between Merck and Bread Financial

Assuming the 90 days trading horizon Merck Co is expected to under-perform the Bread Financial. In addition to that, Merck is 2.43 times more volatile than Bread Financial Holdings. It trades about 0.0 of its total potential returns per unit of risk. Bread Financial Holdings is currently generating about 0.04 per unit of volatility. If you would invest  9,346  in Bread Financial Holdings on October 4, 2024 and sell it today you would earn a total of  83.00  from holding Bread Financial Holdings or generate 0.89% return on investment over 90 days.

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

Merck Co  vs.  Bread Financial Holdings

Merck

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Merck Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Merck is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Bread Financial Holdings

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bread Financial Holdings are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Bread Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and Bread Financial

The main advantage of trading using opposite Merck and Bread Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Bread Financial 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 Bread Financial will offset losses from the drop in Bread Financial's long position.

The idea behind Merck Co and Bread Financial Holdings 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.