Correlation Between Merck and SSgA SPDR

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

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

Diversification Opportunities for Merck and SSgA SPDR

-0.7

Correlation Coefficient

Merck  SSgA SPDR

Excellent diversification

The 3 months correlation between Merck and SSgA is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and SSgA SPDR ETFs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SSgA SPDR ETFs 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 SSgA SPDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SSgA SPDR ETFs has no effect on the direction of Merck i.e., Merck and SSgA SPDR go up and down completely randomly.

Pair Corralation between Merck and SSgA SPDR

Considering the 90-day investment horizon Merck Company is expected to under-perform the SSgA SPDR. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.06 times less risky than SSgA SPDR. The stock trades about -0.15 of its potential returns per unit of risk. The SSgA SPDR ETFs is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  6,139  in SSgA SPDR ETFs on September 12, 2024 and sell it today you would earn a total of  793.00  from holding SSgA SPDR ETFs or generate 12.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Merck Company  vs.  SSgA SPDR ETFs

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 latest weak 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.

SSgA SPDR ETFs

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SSgA SPDR ETFs are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, SSgA SPDR reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and SSgA SPDR

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

The idea behind Merck Company and SSgA SPDR ETFs 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.