Correlation Between Merck and Future Fund

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

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

Diversification Opportunities for Merck and Future Fund

-0.42

Correlation Coefficient

Merck  Future Fund

Very good diversification

The 3 months correlation between Merck and Future is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and The Future Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Future Fund 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 Future Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Future Fund has no effect on the direction of Merck i.e., Merck and Future Fund go up and down completely randomly.

Pair Corralation between Merck and Future Fund

Considering the 90-day investment horizon Merck Company is expected to under-perform the Future Fund. In addition to that, Merck is 1.57 times more volatile than The Future Fund. It trades about -0.03 of its total potential returns per unit of risk. The Future Fund is currently generating about -0.01 per unit of volatility. If you would invest  2,544  in The Future Fund on December 19, 2024 and sell it today you would lose (24.00) from holding The Future Fund or give up 0.94% of portfolio value over 90 days.

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

Merck Company  vs.  The Future Fund

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 newest stock price mess, may contribute to short-term losses for the institutional investors.

Future Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Future Fund has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Future Fund 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 Future Fund

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

The idea behind Merck Company and The Future Fund 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.