Correlation Between Merck and ProShares UltraShort

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

By analyzing existing cross correlation between Merck Company and ProShares UltraShort 7 10, you can compare the effects of market volatilities on Merck and ProShares UltraShort 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 ProShares UltraShort. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and ProShares UltraShort.

Diversification Opportunities for Merck and ProShares UltraShort

0.37

Correlation Coefficient

Merck  ProShares UltraShort

Weak diversification

The 3 months correlation between Merck and ProShares is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and ProShares UltraShort 7 10 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraShort 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 ProShares UltraShort. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares UltraShort has no effect on the direction of Merck i.e., Merck and ProShares UltraShort go up and down completely randomly.

Pair Corralation between Merck and ProShares UltraShort

Considering the 90-day investment horizon Merck Company is expected to under-perform the ProShares UltraShort. In addition to that, Merck is 2.33 times more volatile than ProShares UltraShort 7 10. It trades about -0.07 of its total potential returns per unit of risk. ProShares UltraShort 7 10 is currently generating about -0.08 per unit of volatility. If you would invest  2,394  in ProShares UltraShort 7 10 on December 29, 2024 and sell it today you would lose (91.00) from holding ProShares UltraShort 7 10 or give up 3.8% of portfolio value over 90 days.

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

Merck Company  vs.  ProShares UltraShort 7 10

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 uncertain 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.

ProShares UltraShort

Risk-Adjusted Performance

Very Weak

Over the last 90 days ProShares UltraShort 7 10 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, ProShares UltraShort is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Merck and ProShares UltraShort

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

The idea behind Merck Company and ProShares UltraShort 7 10 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.