Correlation Between Merck and Conestoga Smid

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

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

Diversification Opportunities for Merck and Conestoga Smid

0.46

Correlation Coefficient

Merck  Conestoga Smid

Very weak diversification

The 3 months correlation between Merck and Conestoga is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Conestoga Smid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Conestoga Smid Cap 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 Conestoga Smid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Conestoga Smid Cap has no effect on the direction of Merck i.e., Merck and Conestoga Smid go up and down completely randomly.

Pair Corralation between Merck and Conestoga Smid

Considering the 90-day investment horizon Merck Company is expected to under-perform the Conestoga Smid. In addition to that, Merck is 3.29 times more volatile than Conestoga Smid Cap. It trades about -0.12 of its total potential returns per unit of risk. Conestoga Smid Cap is currently generating about -0.22 per unit of volatility. If you would invest  2,636  in Conestoga Smid Cap on December 2, 2024 and sell it today you would lose (92.00) from holding Conestoga Smid Cap or give up 3.49% 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.  Conestoga Smid Cap

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.

Conestoga Smid Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Conestoga Smid Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Merck and Conestoga Smid

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

The idea behind Merck Company and Conestoga Smid Cap 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.