Correlation Between Merck and ETF Series

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

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

Diversification Opportunities for Merck and ETF Series

0.27

Correlation Coefficient

Merck  ETF Series

Modest diversification

The 3 months correlation between Merck and ETF is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and ETF Series Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETF Series Solutions 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 ETF Series. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETF Series Solutions has no effect on the direction of Merck i.e., Merck and ETF Series go up and down completely randomly.

Pair Corralation between Merck and ETF Series

Considering the 90-day investment horizon Merck Company is expected to under-perform the ETF Series. In addition to that, Merck is 1.65 times more volatile than ETF Series Solutions. It trades about -0.1 of its total potential returns per unit of risk. ETF Series Solutions is currently generating about -0.11 per unit of volatility. If you would invest  3,487  in ETF Series Solutions on December 27, 2024 and sell it today you would lose (252.00) from holding ETF Series Solutions or give up 7.23% of portfolio value over 90 days.

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

Merck Company  vs.  ETF Series Solutions

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.

ETF Series Solutions

Risk-Adjusted Performance

Very Weak

Over the last 90 days ETF Series Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Etf's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

Pair Trading with Merck and ETF Series

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

The idea behind Merck Company and ETF Series Solutions 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.