Correlation Between Merck and AmTrust Financial

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

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

Diversification Opportunities for Merck and AmTrust Financial

0.0

Correlation Coefficient

Merck  AmTrust Financial

Pay attention - limited upside

The 3 months correlation between Merck and AmTrust is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and AmTrust Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AmTrust Financial 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 AmTrust Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AmTrust Financial has no effect on the direction of Merck i.e., Merck and AmTrust Financial go up and down completely randomly.

Pair Corralation between Merck and AmTrust Financial

Considering the 90-day investment horizon Merck Company is expected to under-perform the AmTrust Financial. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 2.04 times less risky than AmTrust Financial. The stock trades about -0.01 of its potential returns per unit of risk. The AmTrust Financial Services is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,215  in AmTrust Financial Services on December 1, 2024 and sell it today you would earn a total of  162.00  from holding AmTrust Financial Services or generate 13.33% return on investment over 90 days.

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

Merck Company  vs.  AmTrust Financial Services

Merck Company

Risk-Adjusted Performance

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 abnormal performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

AmTrust Financial

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AmTrust Financial Services are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward indicators, AmTrust Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Merck and AmTrust Financial

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

The idea behind Merck Company and AmTrust Financial Services 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.

Check out your portfolio center.

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.