Correlation Between Merck and Target

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

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

Diversification Opportunities for Merck and Target

0.29

Correlation Coefficient

Merck  Target

Modest diversification

The 3 months correlation between Merck and Target is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target 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 Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target has no effect on the direction of Merck i.e., Merck and Target go up and down completely randomly.

Pair Corralation between Merck and Target

Considering the 90-day investment horizon Merck Company is expected to generate 1.04 times more return on investment than Target. However, Merck is 1.04 times more volatile than Target. It trades about -0.1 of its potential returns per unit of risk. Target is currently generating about -0.22 per unit of risk. If you would invest  9,885  in Merck Company on December 27, 2024 and sell it today you would lose (1,074) from holding Merck Company or give up 10.86% of portfolio value over 90 days.

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

Merck Company  vs.  Target

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.

Target

Risk-Adjusted Performance

Very Weak

Over the last 90 days Target has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Merck and Target

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

The idea behind Merck Company and Target 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.