Correlation Between Merck and KVH Industries

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

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

Diversification Opportunities for Merck and KVH Industries

-0.25

Correlation Coefficient

Merck  KVH Industries

Very good diversification

The 3 months correlation between Merck and KVH is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and KVH Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KVH Industries 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 KVH Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KVH Industries has no effect on the direction of Merck i.e., Merck and KVH Industries go up and down completely randomly.

Pair Corralation between Merck and KVH Industries

Considering the 90-day investment horizon Merck Company is expected to under-perform the KVH Industries. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.39 times less risky than KVH Industries. The stock trades about -0.1 of its potential returns per unit of risk. The KVH Industries is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  555.00  in KVH Industries on December 27, 2024 and sell it today you would lose (27.00) from holding KVH Industries or give up 4.86% of portfolio value over 90 days.

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

Merck Company  vs.  KVH Industries

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.

KVH Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days KVH Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical indicators, KVH Industries is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Merck and KVH Industries

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

The idea behind Merck Company and KVH Industries 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.