Correlation Between Merck and Xtrackers FTSE

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

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

Diversification Opportunities for Merck and Xtrackers FTSE

-0.43

Correlation Coefficient

Merck  Xtrackers FTSE

Very good diversification

The 3 months correlation between Merck and Xtrackers is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Xtrackers FTSE Developed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers FTSE Developed 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 Xtrackers FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers FTSE Developed has no effect on the direction of Merck i.e., Merck and Xtrackers FTSE go up and down completely randomly.

Pair Corralation between Merck and Xtrackers FTSE

Considering the 90-day investment horizon Merck Company is expected to under-perform the Xtrackers FTSE. In addition to that, Merck is 2.43 times more volatile than Xtrackers FTSE Developed. It trades about -0.13 of its total potential returns per unit of risk. Xtrackers FTSE Developed is currently generating about 0.1 per unit of volatility. If you would invest  2,876  in Xtrackers FTSE Developed on November 19, 2024 and sell it today you would earn a total of  115.10  from holding Xtrackers FTSE Developed or generate 4.0% return on investment over 90 days.

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

Merck Company  vs.  Xtrackers FTSE Developed

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 abnormal performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in March 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Xtrackers FTSE Developed

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers FTSE Developed are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Xtrackers FTSE is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Merck and Xtrackers FTSE

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

The idea behind Merck Company and Xtrackers FTSE Developed 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.

Check out your portfolio center.

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 Global Correlations module to find global opportunities by holding instruments from different markets.