Correlation Between Merck and AUTONATION

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

By analyzing existing cross correlation between Merck Company and AUTONATION INC 38, you can compare the effects of market volatilities on Merck and AUTONATION 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 AUTONATION. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and AUTONATION.

Diversification Opportunities for Merck and AUTONATION

0.17

Correlation Coefficient

Merck  AUTONATION

Average diversification

The 3 months correlation between Merck and AUTONATION is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and AUTONATION INC 38 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AUTONATION INC 38 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 AUTONATION. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AUTONATION INC 38 has no effect on the direction of Merck i.e., Merck and AUTONATION go up and down completely randomly.

Pair Corralation between Merck and AUTONATION

Considering the 90-day investment horizon Merck Company is expected to under-perform the AUTONATION. In addition to that, Merck is 2.23 times more volatile than AUTONATION INC 38. It trades about -0.12 of its total potential returns per unit of risk. AUTONATION INC 38 is currently generating about -0.02 per unit of volatility. If you would invest  9,523  in AUTONATION INC 38 on October 20, 2024 and sell it today you would lose (169.00) from holding AUTONATION INC 38 or give up 1.77% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	88.8%
Values	Daily Returns

Merck Company  vs.  AUTONATION INC 38

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 weak 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.

AUTONATION INC 38

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AUTONATION INC 38 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, AUTONATION 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 AUTONATION

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

The idea behind Merck Company and AUTONATION INC 38 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .