Correlation Between Merck and Goldman Sachs

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

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

Diversification Opportunities for Merck and Goldman Sachs

-0.59

Correlation Coefficient

Merck  Goldman Sachs

Excellent diversification

The 3 months correlation between Merck and Goldman is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Goldman Sachs Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goldman Sachs Global 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 Goldman Sachs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goldman Sachs Global has no effect on the direction of Merck i.e., Merck and Goldman Sachs go up and down completely randomly.

Pair Corralation between Merck and Goldman Sachs

Considering the 90-day investment horizon Merck Company is expected to under-perform the Goldman Sachs. In addition to that, Merck is 1.85 times more volatile than Goldman Sachs Global. It trades about -0.02 of its total potential returns per unit of risk. Goldman Sachs Global is currently generating about 0.04 per unit of volatility. If you would invest  939.00  in Goldman Sachs Global on December 20, 2024 and sell it today you would earn a total of  20.00  from holding Goldman Sachs Global or generate 2.13% return on investment over 90 days.

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

Merck Company  vs.  Goldman Sachs Global

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.

Goldman Sachs Global

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Goldman Sachs Global are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward-looking indicators, Goldman Sachs 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 Goldman Sachs

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

The idea behind Merck Company and Goldman Sachs Global 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.