Correlation Between Merck and SSGA Active

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

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

Diversification Opportunities for Merck and SSGA Active

-0.69

Correlation Coefficient

Merck  SSGA Active

Excellent diversification

The 3 months correlation between Merck and SSGA is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and SSGA Active Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SSGA Active Trust 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 SSGA Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SSGA Active Trust has no effect on the direction of Merck i.e., Merck and SSGA Active go up and down completely randomly.

Pair Corralation between Merck and SSGA Active

Considering the 90-day investment horizon Merck Company is expected to under-perform the SSGA Active. In addition to that, Merck is 8.94 times more volatile than SSGA Active Trust. It trades about -0.1 of its total potential returns per unit of risk. SSGA Active Trust is currently generating about 0.05 per unit of volatility. If you would invest  2,803  in SSGA Active Trust on December 27, 2024 and sell it today you would earn a total of  16.00  from holding SSGA Active Trust or generate 0.57% return on investment over 90 days.

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

Merck Company  vs.  SSGA Active Trust

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 abnormal 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.

SSGA Active Trust

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SSGA Active Trust are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, SSGA Active 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 SSGA Active

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

The idea behind Merck Company and SSGA Active Trust 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.