Correlation Between Merck and Intel

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

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

Diversification Opportunities for Merck and Intel

-0.8

Correlation Coefficient

Merck  Intel

Pay attention - limited upside

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

Pair Corralation between Merck and Intel

Assuming the 90 days trading horizon Merck Company is expected to under-perform the Intel. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.78 times less risky than Intel. The stock trades about -0.03 of its potential returns per unit of risk. The Intel is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  43,489  in Intel on September 4, 2024 and sell it today you would earn a total of  5,352  from holding Intel or generate 12.31% return on investment over 90 days.

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

Merck Company  vs.  Intel

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. In spite of latest weak performance, the Stock's forward-looking signals remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Intel

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Intel are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Intel showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and Intel

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

The idea behind Merck Company and Intel 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.