Correlation Between Merck and Southern Michigan

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

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

Diversification Opportunities for Merck and Southern Michigan

-0.25

Correlation Coefficient

Merck  Southern Michigan

Very good diversification

The 3 months correlation between Merck and Southern is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Southern Michigan Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Michigan Bancorp 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 Southern Michigan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Michigan Bancorp has no effect on the direction of Merck i.e., Merck and Southern Michigan go up and down completely randomly.

Pair Corralation between Merck and Southern Michigan

Considering the 90-day investment horizon Merck Company is expected to under-perform the Southern Michigan. In addition to that, Merck is 4.16 times more volatile than Southern Michigan Bancorp. It trades about -0.1 of its total potential returns per unit of risk. Southern Michigan Bancorp is currently generating about -0.02 per unit of volatility. If you would invest  1,910  in Southern Michigan Bancorp on December 27, 2024 and sell it today you would lose (10.00) from holding Southern Michigan Bancorp or give up 0.52% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.44%
Values	Daily Returns

Merck Company  vs.  Southern Michigan Bancorp

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.

Southern Michigan Bancorp

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Merck and Southern Michigan

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

The idea behind Merck Company and Southern Michigan Bancorp 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.