Correlation Between Merck and Professionally Managed

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Can any of the company-specific risk be diversified away by investing in both Merck and Professionally Managed 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 Professionally Managed into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Professionally Managed Portfolios, you can compare the effects of market volatilities on Merck and Professionally Managed 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 Professionally Managed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Professionally Managed.

Diversification Opportunities for Merck and Professionally Managed

0.73
  Correlation Coefficient

Poor diversification

The 3 months correlation between Merck and Professionally is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Professionally Managed Portfol in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Professionally Managed 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 Professionally Managed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Professionally Managed has no effect on the direction of Merck i.e., Merck and Professionally Managed go up and down completely randomly.

Pair Corralation between Merck and Professionally Managed

Considering the 90-day investment horizon Merck Company is expected to generate 6.21 times more return on investment than Professionally Managed. However, Merck is 6.21 times more volatile than Professionally Managed Portfolios. It trades about -0.01 of its potential returns per unit of risk. Professionally Managed Portfolios is currently generating about -0.27 per unit of risk. If you would invest  10,020  in Merck Company on October 11, 2024 and sell it today you would lose (35.00) from holding Merck Company or give up 0.35% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Merck Company  vs.  Professionally Managed Portfol

 Performance 
       Timeline  
Merck Company 

Risk-Adjusted Performance

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Weak
 
Strong
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 uncertain 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.
Professionally Managed 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Professionally Managed Portfolios has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Professionally Managed is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Merck and Professionally Managed Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merck and Professionally Managed

The main advantage of trading using opposite Merck and Professionally Managed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Professionally Managed 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 Professionally Managed will offset losses from the drop in Professionally Managed's long position.
The idea behind Merck Company and Professionally Managed Portfolios 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.

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