Correlation Between Merck and International Consolidated

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

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

Diversification Opportunities for Merck and International Consolidated

-0.76

Correlation Coefficient

Merck  International Consolidated

Pay attention - limited upside

The 3 months correlation between Merck and International is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and International Consolidated Air in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Consolidated 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 International Consolidated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Consolidated has no effect on the direction of Merck i.e., Merck and International Consolidated go up and down completely randomly.

Pair Corralation between Merck and International Consolidated

Considering the 90-day investment horizon Merck Company is expected to under-perform the International Consolidated. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.58 times less risky than International Consolidated. The stock trades about 0.0 of its potential returns per unit of risk. The International Consolidated Airlines is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  383.00  in International Consolidated Airlines on September 3, 2024 and sell it today you would earn a total of  281.00  from holding International Consolidated Airlines or generate 73.37% 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.  International Consolidated Air

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 unsteady 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.

International Consolidated

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in International Consolidated Airlines are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile technical and fundamental indicators, International Consolidated showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and International Consolidated

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

The idea behind Merck Company and International Consolidated Airlines 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..