Correlation Between Merck and Harford Bank

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

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

Diversification Opportunities for Merck and Harford Bank

-0.46

Correlation Coefficient

Merck  Harford Bank

Very good diversification

The 3 months correlation between Merck and Harford is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Harford Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Harford Bank 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 Harford Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Harford Bank has no effect on the direction of Merck i.e., Merck and Harford Bank go up and down completely randomly.

Pair Corralation between Merck and Harford Bank

Considering the 90-day investment horizon Merck Company is expected to under-perform the Harford Bank. In addition to that, Merck is 2.7 times more volatile than Harford Bank. It trades about -0.09 of its total potential returns per unit of risk. Harford Bank is currently generating about -0.04 per unit of volatility. If you would invest  3,400  in Harford Bank on September 19, 2024 and sell it today you would lose (25.00) from holding Harford Bank or give up 0.74% 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.  Harford Bank

Merck Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Harford Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Harford Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental drivers, Harford Bank is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Merck and Harford Bank

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

The idea behind Merck Company and Harford Bank 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.