Correlation Between Merck and Xtrackers Harvest

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

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

Diversification Opportunities for Merck and Xtrackers Harvest

-0.5

Correlation Coefficient

Merck  Xtrackers Harvest

Very good diversification

The 3 months correlation between Merck and Xtrackers is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Xtrackers Harvest CSI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers Harvest CSI 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 Xtrackers Harvest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers Harvest CSI has no effect on the direction of Merck i.e., Merck and Xtrackers Harvest go up and down completely randomly.

Pair Corralation between Merck and Xtrackers Harvest

Considering the 90-day investment horizon Merck Company is expected to under-perform the Xtrackers Harvest. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.71 times less risky than Xtrackers Harvest. The stock trades about -0.01 of its potential returns per unit of risk. The Xtrackers Harvest CSI is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,955  in Xtrackers Harvest CSI on September 19, 2024 and sell it today you would lose (59.00) from holding Xtrackers Harvest CSI or give up 2.0% of portfolio value over 90 days.

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

Merck Company  vs.  Xtrackers Harvest CSI

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 uncertain performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Xtrackers Harvest CSI

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers Harvest CSI are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical indicators, Xtrackers Harvest unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and Xtrackers Harvest

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

The idea behind Merck Company and Xtrackers Harvest CSI 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.