Correlation Between Merck and Alternet Systems

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

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

Diversification Opportunities for Merck and Alternet Systems

0.25

Correlation Coefficient

Merck  Alternet Systems

Modest diversification

The 3 months correlation between Merck and Alternet is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Alternet Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alternet Systems 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 Alternet Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alternet Systems has no effect on the direction of Merck i.e., Merck and Alternet Systems go up and down completely randomly.

Pair Corralation between Merck and Alternet Systems

Considering the 90-day investment horizon Merck Company is expected to generate 0.21 times more return on investment than Alternet Systems. However, Merck Company is 4.88 times less risky than Alternet Systems. It trades about -0.1 of its potential returns per unit of risk. Alternet Systems is currently generating about -0.02 per unit of risk. If you would invest  9,901  in Merck Company on December 26, 2024 and sell it today you would lose (1,114) from holding Merck Company or give up 11.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Merck Company  vs.  Alternet Systems

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.

Alternet Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alternet Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Merck and Alternet Systems

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

The idea behind Merck Company and Alternet Systems 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.