Correlation Between Merck and Reckitt Benckiser

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

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

Diversification Opportunities for Merck and Reckitt Benckiser

-0.64

Correlation Coefficient

Merck  Reckitt Benckiser

Excellent diversification

The 3 months correlation between Merck and Reckitt is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Reckitt Benckiser Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reckitt Benckiser 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 Reckitt Benckiser. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reckitt Benckiser has no effect on the direction of Merck i.e., Merck and Reckitt Benckiser go up and down completely randomly.

Pair Corralation between Merck and Reckitt Benckiser

Considering the 90-day investment horizon Merck Company is expected to under-perform the Reckitt Benckiser. In addition to that, Merck is 1.59 times more volatile than Reckitt Benckiser Group. It trades about -0.07 of its total potential returns per unit of risk. Reckitt Benckiser Group is currently generating about 0.18 per unit of volatility. If you would invest  1,199  in Reckitt Benckiser Group on December 28, 2024 and sell it today you would earn a total of  157.00  from holding Reckitt Benckiser Group or generate 13.09% 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.  Reckitt Benckiser Group

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.

Reckitt Benckiser

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Reckitt Benckiser Group are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile essential indicators, Reckitt Benckiser showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and Reckitt Benckiser

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

The idea behind Merck Company and Reckitt Benckiser Group 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.