Correlation Between Merck and Clover Leaf

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

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

Diversification Opportunities for Merck and Clover Leaf

-0.32

Correlation Coefficient

Merck  Clover Leaf

Very good diversification

The 3 months correlation between Merck and Clover is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Clover Leaf Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clover Leaf Capital 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 Clover Leaf. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clover Leaf Capital has no effect on the direction of Merck i.e., Merck and Clover Leaf go up and down completely randomly.

Pair Corralation between Merck and Clover Leaf

Considering the 90-day investment horizon Merck Company is expected to under-perform the Clover Leaf. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 74.77 times less risky than Clover Leaf. The stock trades about 0.0 of its potential returns per unit of risk. The Clover Leaf Capital is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  7.69  in Clover Leaf Capital on October 11, 2024 and sell it today you would earn a total of  10.31  from holding Clover Leaf Capital or generate 134.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	48.19%
Values	Daily Returns

Merck Company  vs.  Clover Leaf Capital

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 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.

Clover Leaf Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Clover Leaf Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Clover Leaf is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Merck and Clover Leaf

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

The idea behind Merck Company and Clover Leaf Capital 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.