Correlation Between Merck and Apple

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

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

Diversification Opportunities for Merck and Apple

0.83

Correlation Coefficient

Merck  Apple

Very poor diversification

The 3 months correlation between Merck and Apple is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Apple Inc DRC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Apple Inc DRC 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 Company are associated (or correlated) with Apple. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Apple Inc DRC has no effect on the direction of Merck i.e., Merck and Apple go up and down completely randomly.

Pair Corralation between Merck and Apple

Assuming the 90 days trading horizon Merck Company is expected to under-perform the Apple. In addition to that, Merck is 1.09 times more volatile than Apple Inc DRC. It trades about -0.33 of its total potential returns per unit of risk. Apple Inc DRC is currently generating about -0.05 per unit of volatility. If you would invest  1,387,500  in Apple Inc DRC on September 13, 2024 and sell it today you would lose (65,000) from holding Apple Inc DRC or give up 4.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Merck Company  vs.  Apple Inc DRC

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. Despite weak performance in the last few months, the Stock's forward-looking signals remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Apple Inc DRC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Apple Inc DRC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Apple is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Merck and Apple

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

The idea behind Merck Company and Apple Inc DRC 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.