Correlation Between Merck and Iron Mountain

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

By analyzing existing cross correlation between Merck Co and Iron Mountain Incorporated, you can compare the effects of market volatilities on Merck and Iron Mountain 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 Iron Mountain. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Iron Mountain.

Diversification Opportunities for Merck and Iron Mountain

-0.08

Correlation Coefficient

Merck  Iron Mountain

Good diversification

The 3 months correlation between Merck and Iron is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Merck Co and Iron Mountain Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iron Mountain 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 Iron Mountain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iron Mountain has no effect on the direction of Merck i.e., Merck and Iron Mountain go up and down completely randomly.

Pair Corralation between Merck and Iron Mountain

Assuming the 90 days trading horizon Merck Co is expected to generate 1.14 times more return on investment than Iron Mountain. However, Merck is 1.14 times more volatile than Iron Mountain Incorporated. It trades about -0.16 of its potential returns per unit of risk. Iron Mountain Incorporated is currently generating about -0.26 per unit of risk. If you would invest  7,728  in Merck Co on October 22, 2024 and sell it today you would lose (284.00) from holding Merck Co or give up 3.67% of portfolio value over 90 days.

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

Merck Co  vs.  Iron Mountain Incorporated

Merck

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merck Co has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Iron Mountain

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iron Mountain Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Merck and Iron Mountain

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

The idea behind Merck Co and Iron Mountain Incorporated 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.