Correlation Between Merck and ProShares Trust

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

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

Diversification Opportunities for Merck and ProShares Trust

0.52

Correlation Coefficient

Merck  ProShares Trust

Very weak diversification

The 3 months correlation between Merck and ProShares is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and ProShares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Trust 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 ProShares Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Trust has no effect on the direction of Merck i.e., Merck and ProShares Trust go up and down completely randomly.

Pair Corralation between Merck and ProShares Trust

Considering the 90-day investment horizon Merck Company is expected to generate 0.49 times more return on investment than ProShares Trust. However, Merck Company is 2.05 times less risky than ProShares Trust. It trades about -0.03 of its potential returns per unit of risk. ProShares Trust is currently generating about -0.14 per unit of risk. If you would invest  9,852  in Merck Company on December 21, 2024 and sell it today you would lose (379.00) from holding Merck Company or give up 3.85% of portfolio value over 90 days.

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

Merck Company  vs.  ProShares Trust

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 quite persistent basic indicators, Merck is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

ProShares Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days ProShares Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Etf's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.

Pair Trading with Merck and ProShares Trust

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

The idea behind Merck Company and ProShares Trust 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.