Correlation Between Merck and ProShares Ultra

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

By analyzing existing cross correlation between Merck Company and ProShares Ultra 20, you can compare the effects of market volatilities on Merck and ProShares Ultra 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 ProShares Ultra. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and ProShares Ultra.

Diversification Opportunities for Merck and ProShares Ultra

0.92

Correlation Coefficient

Merck  ProShares Ultra

Almost no diversification

The 3 months correlation between Merck and ProShares is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and ProShares Ultra 20 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Ultra 20 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 ProShares Ultra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Ultra 20 has no effect on the direction of Merck i.e., Merck and ProShares Ultra go up and down completely randomly.

Pair Corralation between Merck and ProShares Ultra

Considering the 90-day investment horizon Merck Company is expected to generate 0.7 times more return on investment than ProShares Ultra. However, Merck Company is 1.42 times less risky than ProShares Ultra. It trades about -0.18 of its potential returns per unit of risk. ProShares Ultra 20 is currently generating about -0.16 per unit of risk. If you would invest  11,509  in Merck Company on September 13, 2024 and sell it today you would lose (1,534) from holding Merck Company or give up 13.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Merck Company  vs.  ProShares Ultra 20

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 abnormal performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

ProShares Ultra 20

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares Ultra 20 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Etf's fundamental drivers remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the exchange-traded fund private investors.

Pair Trading with Merck and ProShares Ultra

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

The idea behind Merck Company and ProShares Ultra 20 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.