Correlation Between Merck and APACW Old

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

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

Diversification Opportunities for Merck and APACW Old

0.78

Correlation Coefficient

Merck  APACW Old

Poor diversification

The 3 months correlation between Merck and APACW is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and APACW Old in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on APACW Old 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 APACW Old. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of APACW Old has no effect on the direction of Merck i.e., Merck and APACW Old go up and down completely randomly.

Pair Corralation between Merck and APACW Old

If you would invest  2.07  in APACW Old on October 10, 2024 and sell it today you would earn a total of  0.00  from holding APACW Old or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	0.81%
Values	Daily Returns

Merck Company  vs.  APACW Old

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 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.

APACW Old

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days APACW Old has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, APACW Old is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Merck and APACW Old

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

The idea behind Merck Company and APACW Old 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.