Correlation Between Merck and 00037BAF9

Can any of the company-specific risk be diversified away by investing in both Merck and 00037BAF9 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 00037BAF9 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Merck Company and ABB FIN USA, you can compare the effects of market volatilities on Merck and 00037BAF9 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 00037BAF9. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and 00037BAF9.

Diversification Opportunities for Merck and 00037BAF9

-0.45

Correlation Coefficient

Merck  00037BAF9

Very good diversification

The 3 months correlation between Merck and 00037BAF9 is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and ABB FIN USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB FIN USA 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 00037BAF9. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABB FIN USA has no effect on the direction of Merck i.e., Merck and 00037BAF9 go up and down completely randomly.

Pair Corralation between Merck and 00037BAF9

Considering the 90-day investment horizon Merck Company is expected to under-perform the 00037BAF9. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 59.96 times less risky than 00037BAF9. The stock trades about -0.01 of its potential returns per unit of risk. The ABB FIN USA is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  9,869  in ABB FIN USA on December 2, 2024 and sell it today you would lose (134.00) from holding ABB FIN USA or give up 1.36% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	32.93%
Values	Daily Returns

Merck Company  vs.  ABB FIN USA

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.

ABB FIN USA

Risk-Adjusted Performance

Very Weak

Over the last 90 days ABB FIN USA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 00037BAF9 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Merck and 00037BAF9

The main advantage of trading using opposite Merck and 00037BAF9 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, 00037BAF9 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 00037BAF9 will offset losses from the drop in 00037BAF9's long position.

The idea behind Merck Company and ABB FIN USA 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 Stocks Directory module to find actively traded stocks across global markets.