Correlation Between Merck and TransAct Technologies

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

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

Diversification Opportunities for Merck and TransAct Technologies

0.87

Correlation Coefficient

Merck  TransAct Technologies

Very poor diversification

The 3 months correlation between Merck and TransAct is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and TransAct Technologies Incorpor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TransAct Technologies 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 TransAct Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TransAct Technologies has no effect on the direction of Merck i.e., Merck and TransAct Technologies go up and down completely randomly.

Pair Corralation between Merck and TransAct Technologies

Considering the 90-day investment horizon Merck Company is expected to generate 0.37 times more return on investment than TransAct Technologies. However, Merck Company is 2.67 times less risky than TransAct Technologies. It trades about 0.0 of its potential returns per unit of risk. TransAct Technologies Incorporated is currently generating about -0.02 per unit of risk. If you would invest  10,459  in Merck Company on October 5, 2024 and sell it today you would lose (542.00) from holding Merck Company or give up 5.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.8%
Values	Daily Returns

Merck Company  vs.  TransAct Technologies Incorpor

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 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.

TransAct Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TransAct Technologies Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Merck and TransAct Technologies

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

The idea behind Merck Company and TransAct Technologies Incorporated 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.