Correlation Between Merck and Invesco DWA

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

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

Diversification Opportunities for Merck and Invesco DWA

-0.77

Correlation Coefficient

Merck  Invesco DWA

Pay attention - limited upside

The 3 months correlation between Merck and Invesco is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Invesco DWA Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DWA Energy 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 Invesco DWA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco DWA Energy has no effect on the direction of Merck i.e., Merck and Invesco DWA go up and down completely randomly.

Pair Corralation between Merck and Invesco DWA

Considering the 90-day investment horizon Merck Company is expected to generate 0.95 times more return on investment than Invesco DWA. However, Merck Company is 1.05 times less risky than Invesco DWA. It trades about 0.14 of its potential returns per unit of risk. Invesco DWA Energy is currently generating about -0.26 per unit of risk. If you would invest  9,656  in Merck Company on September 17, 2024 and sell it today you would earn a total of  376.00  from holding Merck Company or generate 3.89% return on investment over 90 days.

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

Merck Company  vs.  Invesco DWA Energy

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.

Invesco DWA Energy

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Invesco DWA is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Merck and Invesco DWA

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

The idea behind Merck Company and Invesco DWA Energy 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.