Correlation Between Merck and Schwab Strategic

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

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

Diversification Opportunities for Merck and Schwab Strategic

-0.15

Correlation Coefficient

Merck  Schwab Strategic

Good diversification

The 3 months correlation between Merck and Schwab is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Schwab Strategic Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Strategic Trust 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 Schwab Strategic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Strategic Trust has no effect on the direction of Merck i.e., Merck and Schwab Strategic go up and down completely randomly.

Pair Corralation between Merck and Schwab Strategic

Considering the 90-day investment horizon Merck Company is expected to under-perform the Schwab Strategic. In addition to that, Merck is 1.54 times more volatile than Schwab Strategic Trust. It trades about -0.1 of its total potential returns per unit of risk. Schwab Strategic Trust is currently generating about -0.1 per unit of volatility. If you would invest  2,707  in Schwab Strategic Trust on December 27, 2024 and sell it today you would lose (193.00) from holding Schwab Strategic Trust or give up 7.13% of portfolio value over 90 days.

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

Merck Company  vs.  Schwab Strategic Trust

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 abnormal 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.

Schwab Strategic Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days Schwab Strategic Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Etf's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the Exchange Traded Fund stockholders.

Pair Trading with Merck and Schwab Strategic

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

The idea behind Merck Company and Schwab Strategic Trust 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.