Correlation Between Merck and FT Vest

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

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

Diversification Opportunities for Merck and FT Vest

0.11

Correlation Coefficient

Merck  FT Vest

Average diversification

The 3 months correlation between Merck and SDVD is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and FT Vest SMID in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FT Vest SMID 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 FT Vest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FT Vest SMID has no effect on the direction of Merck i.e., Merck and FT Vest go up and down completely randomly.

Pair Corralation between Merck and FT Vest

Considering the 90-day investment horizon Merck Company is expected to generate 1.62 times more return on investment than FT Vest. However, Merck is 1.62 times more volatile than FT Vest SMID. It trades about -0.03 of its potential returns per unit of risk. FT Vest SMID is currently generating about -0.07 per unit of risk. If you would invest  9,867  in Merck Company on December 19, 2024 and sell it today you would lose (395.00) from holding Merck Company or give up 4.0% of portfolio value over 90 days.

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

Merck Company  vs.  FT Vest SMID

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 quite persistent basic indicators, Merck is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

FT Vest SMID

Risk-Adjusted Performance

Very Weak

Over the last 90 days FT Vest SMID has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, FT Vest is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Merck and FT Vest

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

The idea behind Merck Company and FT Vest SMID 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.