Correlation Between Merck and Boyd Gaming

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

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

Diversification Opportunities for Merck and Boyd Gaming

-0.41

Correlation Coefficient

Merck  Boyd Gaming

Very good diversification

The 3 months correlation between Merck and Boyd is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Boyd Gaming in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boyd Gaming 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 Boyd Gaming. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boyd Gaming has no effect on the direction of Merck i.e., Merck and Boyd Gaming go up and down completely randomly.

Pair Corralation between Merck and Boyd Gaming

Considering the 90-day investment horizon Merck Company is expected to under-perform the Boyd Gaming. In addition to that, Merck is 1.17 times more volatile than Boyd Gaming. It trades about -0.1 of its total potential returns per unit of risk. Boyd Gaming is currently generating about -0.05 per unit of volatility. If you would invest  7,222  in Boyd Gaming on December 27, 2024 and sell it today you would lose (386.00) from holding Boyd Gaming or give up 5.34% 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.  Boyd Gaming

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.

Boyd Gaming

Risk-Adjusted Performance

Very Weak

Over the last 90 days Boyd Gaming has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Boyd Gaming is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Merck and Boyd Gaming

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

The idea behind Merck Company and Boyd Gaming 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.