Correlation Between Merck and Universal Media

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

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

Diversification Opportunities for Merck and Universal Media

0.82

Correlation Coefficient

Merck  Universal Media

Very poor diversification

The 3 months correlation between Merck and Universal is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Universal Media Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Media Group 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 Universal Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Media Group has no effect on the direction of Merck i.e., Merck and Universal Media go up and down completely randomly.

Pair Corralation between Merck and Universal Media

Considering the 90-day investment horizon Merck Company is expected to generate 0.09 times more return on investment than Universal Media. However, Merck Company is 11.58 times less risky than Universal Media. It trades about -0.08 of its potential returns per unit of risk. Universal Media Group is currently generating about -0.02 per unit of risk. If you would invest  10,297  in Merck Company on October 10, 2024 and sell it today you would lose (195.00) from holding Merck Company or give up 1.89% of portfolio value over 90 days.

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

Merck Company  vs.  Universal Media Group

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.

Universal Media Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Universal Media Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Universal Media is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Merck and Universal Media

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

The idea behind Merck Company and Universal Media Group 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.