Correlation Between Merck and MusclePharm

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

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

Diversification Opportunities for Merck and MusclePharm

0.85

Correlation Coefficient

Merck  MusclePharm

Very poor diversification

The 3 months correlation between Merck and MusclePharm is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and MusclePharm in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MusclePharm 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 MusclePharm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MusclePharm has no effect on the direction of Merck i.e., Merck and MusclePharm go up and down completely randomly.

Pair Corralation between Merck and MusclePharm

If you would invest (100.00) in MusclePharm on October 10, 2024 and sell it today you would earn a total of  100.00  from holding MusclePharm or generate -100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	0.0%
Values	Daily Returns

Merck Company  vs.  MusclePharm

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 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.

MusclePharm

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MusclePharm has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, MusclePharm is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Merck and MusclePharm

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

The idea behind Merck Company and MusclePharm 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.