Correlation Between Merck and The Us

Can any of the company-specific risk be diversified away by investing in both Merck and The Us 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 The Us 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 Government Fixed, you can compare the effects of market volatilities on Merck and The Us 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 The Us. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and The Us.

Diversification Opportunities for Merck and The Us

-0.3

Correlation Coefficient

Merck  The Us

Very good diversification

The 3 months correlation between Merck and The is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and The Government Fixed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Government Fixed 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 The Us. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Government Fixed has no effect on the direction of Merck i.e., Merck and The Us go up and down completely randomly.

Pair Corralation between Merck and The Us

Considering the 90-day investment horizon Merck Company is expected to under-perform the The Us. In addition to that, Merck is 5.27 times more volatile than The Government Fixed. It trades about -0.02 of its total potential returns per unit of risk. The Government Fixed is currently generating about 0.09 per unit of volatility. If you would invest  840.00  in The Government Fixed on December 18, 2024 and sell it today you would earn a total of  14.00  from holding The Government Fixed or generate 1.67% return on investment over 90 days.

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

Merck Company  vs.  The Government Fixed

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.

Government Fixed

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Government Fixed are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, The Us 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 The Us

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

The idea behind Merck Company and The Government Fixed 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.