Correlation Between Merck and Fidelity Advisor

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

By analyzing existing cross correlation between Merck Company and Fidelity Advisor 529, you can compare the effects of market volatilities on Merck and Fidelity Advisor 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 Fidelity Advisor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Fidelity Advisor.

Diversification Opportunities for Merck and Fidelity Advisor

-0.01

Correlation Coefficient

Merck  Fidelity Advisor

Good diversification

The 3 months correlation between Merck and Fidelity is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Fidelity Advisor 529 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Advisor 529 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 Fidelity Advisor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Advisor 529 has no effect on the direction of Merck i.e., Merck and Fidelity Advisor go up and down completely randomly.

Pair Corralation between Merck and Fidelity Advisor

Considering the 90-day investment horizon Merck Company is expected to under-perform the Fidelity Advisor. In addition to that, Merck is 1.64 times more volatile than Fidelity Advisor 529. It trades about -0.07 of its total potential returns per unit of risk. Fidelity Advisor 529 is currently generating about -0.08 per unit of volatility. If you would invest  6,752  in Fidelity Advisor 529 on December 29, 2024 and sell it today you would lose (393.00) from holding Fidelity Advisor 529 or give up 5.82% of portfolio value over 90 days.

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

Merck Company  vs.  Fidelity Advisor 529

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 uncertain 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.

Fidelity Advisor 529

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fidelity Advisor 529 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Fidelity Advisor is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Merck and Fidelity Advisor

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

The idea behind Merck Company and Fidelity Advisor 529 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.