Correlation Between Merck and Innovator Capital

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

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

Diversification Opportunities for Merck and Innovator Capital

-0.89

Correlation Coefficient

Merck  Innovator Capital

Pay attention - limited upside

The 3 months correlation between Merck and Innovator is -0.89. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Innovator Capital Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator 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 Innovator Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator Capital has no effect on the direction of Merck i.e., Merck and Innovator Capital go up and down completely randomly.

Pair Corralation between Merck and Innovator Capital

Considering the 90-day investment horizon Merck Company is expected to under-perform the Innovator Capital. In addition to that, Merck is 2.17 times more volatile than Innovator Capital Management. It trades about 0.0 of its total potential returns per unit of risk. Innovator Capital Management is currently generating about 0.21 per unit of volatility. If you would invest  2,697  in Innovator Capital Management on September 21, 2024 and sell it today you would earn a total of  490.00  from holding Innovator Capital Management or generate 18.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	28.08%
Values	Daily Returns

Merck Company  vs.  Innovator Capital Management

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

Innovator Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Innovator Capital Management has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Innovator Capital is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Merck and Innovator Capital

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

The idea behind Merck Company and Innovator Capital Management 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.