Correlation Between Merck and ALLTEL

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

By analyzing existing cross correlation between Merck Company and ALLTEL P 68, you can compare the effects of market volatilities on Merck and ALLTEL 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 ALLTEL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and ALLTEL.

Diversification Opportunities for Merck and ALLTEL

-0.27

Correlation Coefficient

Merck  ALLTEL

Very good diversification

The 3 months correlation between Merck and ALLTEL is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and ALLTEL P 68 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALLTEL P 68 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 ALLTEL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALLTEL P 68 has no effect on the direction of Merck i.e., Merck and ALLTEL go up and down completely randomly.

Pair Corralation between Merck and ALLTEL

Considering the 90-day investment horizon Merck Company is expected to under-perform the ALLTEL. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.36 times less risky than ALLTEL. The stock trades about -0.12 of its potential returns per unit of risk. The ALLTEL P 68 is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  10,509  in ALLTEL P 68 on October 4, 2024 and sell it today you would lose (148.00) from holding ALLTEL P 68 or give up 1.41% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	22.58%
Values	Daily Returns

Merck Company  vs.  ALLTEL P 68

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.

ALLTEL P 68

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ALLTEL P 68 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ALLTEL is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Merck and ALLTEL

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

The idea behind Merck Company and ALLTEL P 68 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.