Correlation Between Merck and Leidos Holdings

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

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

Diversification Opportunities for Merck and Leidos Holdings

0.09

Correlation Coefficient

Merck  Leidos Holdings

Significant diversification

The 3 months correlation between Merck and Leidos is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Leidos Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leidos Holdings 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 Leidos Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leidos Holdings has no effect on the direction of Merck i.e., Merck and Leidos Holdings go up and down completely randomly.

Pair Corralation between Merck and Leidos Holdings

Considering the 90-day investment horizon Merck Company is expected to generate 0.48 times more return on investment than Leidos Holdings. However, Merck Company is 2.09 times less risky than Leidos Holdings. It trades about -0.12 of its potential returns per unit of risk. Leidos Holdings is currently generating about -0.08 per unit of risk. If you would invest  10,890  in Merck Company on October 4, 2024 and sell it today you would lose (992.00) from holding Merck Company or give up 9.11% of portfolio value over 90 days.

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

Merck Company  vs.  Leidos Holdings

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 latest weak 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.

Leidos Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Leidos Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Merck and Leidos Holdings

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

The idea behind Merck Company and Leidos Holdings 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.

Check out your portfolio center.

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 Bonds Directory module to find actively traded corporate debentures issued by US companies.