Correlation Between Merck and Fentura Financial

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

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

Diversification Opportunities for Merck and Fentura Financial

0.02

Correlation Coefficient

Merck  Fentura Financial

Significant diversification

The 3 months correlation between Merck and Fentura is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Fentura Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fentura Financial 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 Fentura Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fentura Financial has no effect on the direction of Merck i.e., Merck and Fentura Financial go up and down completely randomly.

Pair Corralation between Merck and Fentura Financial

Considering the 90-day investment horizon Merck Company is expected to under-perform the Fentura Financial. In addition to that, Merck is 1.31 times more volatile than Fentura Financial. It trades about -0.02 of its total potential returns per unit of risk. Fentura Financial is currently generating about -0.01 per unit of volatility. If you would invest  4,300  in Fentura Financial on December 20, 2024 and sell it today you would lose (30.00) from holding Fentura Financial or give up 0.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	78.33%
Values	Daily Returns

Merck Company  vs.  Fentura Financial

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 quite persistent basic indicators, Merck is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Fentura Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fentura Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Fentura Financial is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Merck and Fentura Financial

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

The idea behind Merck Company and Fentura Financial 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.