Correlation Between Merck and AYR WELLNESS

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

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

Diversification Opportunities for Merck and AYR WELLNESS

0.83

Correlation Coefficient

Merck  AYR WELLNESS

Very poor diversification

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

Pair Corralation between Merck and AYR WELLNESS

Assuming the 90 days horizon Merck Company is expected to generate 0.11 times more return on investment than AYR WELLNESS. However, Merck Company is 8.71 times less risky than AYR WELLNESS. It trades about -0.15 of its potential returns per unit of risk. AYR WELLNESS INCRESVTG is currently generating about -0.2 per unit of risk. If you would invest  15,970  in Merck Company on October 23, 2024 and sell it today you would lose (1,820) from holding Merck Company or give up 11.4% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.33%
Values	Daily Returns

Merck Company  vs.  AYR WELLNESS INCRESVTG

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 latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

AYR WELLNESS INCRESVTG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AYR WELLNESS INCRESVTG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's forward-looking indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Merck and AYR WELLNESS

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

The idea behind Merck Company and AYR WELLNESS INCRESVTG 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.