Correlation Between Merck and SPDR SSGA

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

By analyzing existing cross correlation between Merck Company and SPDR SSGA My2033, you can compare the effects of market volatilities on Merck and SPDR SSGA 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 SPDR SSGA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and SPDR SSGA.

Diversification Opportunities for Merck and SPDR SSGA

0.53

Correlation Coefficient

Merck  SPDR SSGA

Very weak diversification

The 3 months correlation between Merck and SPDR is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and SPDR SSGA My2033 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SSGA My2033 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 SPDR SSGA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SSGA My2033 has no effect on the direction of Merck i.e., Merck and SPDR SSGA go up and down completely randomly.

Pair Corralation between Merck and SPDR SSGA

Considering the 90-day investment horizon Merck Company is expected to under-perform the SPDR SSGA. In addition to that, Merck is 3.1 times more volatile than SPDR SSGA My2033. It trades about -0.14 of its total potential returns per unit of risk. SPDR SSGA My2033 is currently generating about 0.01 per unit of volatility. If you would invest  2,392  in SPDR SSGA My2033 on October 23, 2024 and sell it today you would earn a total of  1.00  from holding SPDR SSGA My2033 or generate 0.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.74%
Values	Daily Returns

Merck Company  vs.  SPDR SSGA My2033

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 unsteady 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.

SPDR SSGA My2033

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR SSGA My2033 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, SPDR SSGA is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Merck and SPDR SSGA

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

The idea behind Merck Company and SPDR SSGA My2033 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.