Correlation Between Merck and SPDR DoubleLine

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

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

Diversification Opportunities for Merck and SPDR DoubleLine

-0.49

Correlation Coefficient

Merck  SPDR DoubleLine

Very good diversification

The 3 months correlation between Merck and SPDR is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and SPDR DoubleLine Total in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR DoubleLine Total 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 SPDR DoubleLine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR DoubleLine Total has no effect on the direction of Merck i.e., Merck and SPDR DoubleLine go up and down completely randomly.

Pair Corralation between Merck and SPDR DoubleLine

Considering the 90-day investment horizon Merck Company is expected to under-perform the SPDR DoubleLine. In addition to that, Merck is 6.55 times more volatile than SPDR DoubleLine Total. It trades about -0.1 of its total potential returns per unit of risk. SPDR DoubleLine Total is currently generating about 0.15 per unit of volatility. If you would invest  3,897  in SPDR DoubleLine Total on December 27, 2024 and sell it today you would earn a total of  101.00  from holding SPDR DoubleLine Total or generate 2.59% return on investment over 90 days.

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

Merck Company  vs.  SPDR DoubleLine Total

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.

SPDR DoubleLine Total

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR DoubleLine Total are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, SPDR DoubleLine is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Merck and SPDR DoubleLine

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

The idea behind Merck Company and SPDR DoubleLine Total 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.