Correlation Between Merck and Telecomunicaes Brasileiras

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

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

Diversification Opportunities for Merck and Telecomunicaes Brasileiras

-0.8

Correlation Coefficient

Merck  Telecomunicaes Brasileiras

Pay attention - limited upside

The 3 months correlation between Merck and Telecomunicaes is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Merck Co and Telecomunicaes Brasileiras SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telecomunicaes Brasileiras 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 Telecomunicaes Brasileiras. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telecomunicaes Brasileiras has no effect on the direction of Merck i.e., Merck and Telecomunicaes Brasileiras go up and down completely randomly.

Pair Corralation between Merck and Telecomunicaes Brasileiras

Assuming the 90 days trading horizon Merck Co is expected to under-perform the Telecomunicaes Brasileiras. But the stock apears to be less risky and, when comparing its historical volatility, Merck Co is 1.6 times less risky than Telecomunicaes Brasileiras. The stock trades about -0.14 of its potential returns per unit of risk. The Telecomunicaes Brasileiras SA is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  742.00  in Telecomunicaes Brasileiras SA on December 26, 2024 and sell it today you would earn a total of  170.00  from holding Telecomunicaes Brasileiras SA or generate 22.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Merck Co  vs.  Telecomunicaes Brasileiras SA

Merck

Risk-Adjusted Performance

Very Weak

Over the last 90 days Merck Co 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 fundamental indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Telecomunicaes Brasileiras

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Telecomunicaes Brasileiras SA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Telecomunicaes Brasileiras unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and Telecomunicaes Brasileiras

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

The idea behind Merck Co and Telecomunicaes Brasileiras SA 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.