Correlation Between Merck and Pimco Flexible

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

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

Diversification Opportunities for Merck and Pimco Flexible

0.65

Correlation Coefficient

Merck  Pimco Flexible

Poor diversification

The 3 months correlation between Merck and Pimco is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Pimco Flexible Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pimco Flexible Municipal 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 Pimco Flexible. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pimco Flexible Municipal has no effect on the direction of Merck i.e., Merck and Pimco Flexible go up and down completely randomly.

Pair Corralation between Merck and Pimco Flexible

Considering the 90-day investment horizon Merck Company is expected to generate 3.97 times more return on investment than Pimco Flexible. However, Merck is 3.97 times more volatile than Pimco Flexible Municipal. It trades about 0.1 of its potential returns per unit of risk. Pimco Flexible Municipal is currently generating about -0.25 per unit of risk. If you would invest  9,667  in Merck Company on September 21, 2024 and sell it today you would earn a total of  292.00  from holding Merck Company or generate 3.02% return on investment over 90 days.

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

Merck Company  vs.  Pimco Flexible Municipal

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 uncertain 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.

Pimco Flexible Municipal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pimco Flexible Municipal has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Pimco Flexible is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Merck and Pimco Flexible

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

The idea behind Merck Company and Pimco Flexible Municipal 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.