Correlation Between Merck and CONSOLIDATED

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

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

Diversification Opportunities for Merck and CONSOLIDATED

0.73

Correlation Coefficient

Merck  CONSOLIDATED

Poor diversification

The 3 months correlation between Merck and CONSOLIDATED is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and CONSOLIDATED EDISON N in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CONSOLIDATED EDISON 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 CONSOLIDATED. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CONSOLIDATED EDISON has no effect on the direction of Merck i.e., Merck and CONSOLIDATED go up and down completely randomly.

Pair Corralation between Merck and CONSOLIDATED

Considering the 90-day investment horizon Merck Company is expected to under-perform the CONSOLIDATED. In addition to that, Merck is 1.01 times more volatile than CONSOLIDATED EDISON N. It trades about -0.18 of its total potential returns per unit of risk. CONSOLIDATED EDISON N is currently generating about -0.11 per unit of volatility. If you would invest  9,322  in CONSOLIDATED EDISON N on September 16, 2024 and sell it today you would lose (715.00) from holding CONSOLIDATED EDISON N or give up 7.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	87.69%
Values	Daily Returns

Merck Company  vs.  CONSOLIDATED EDISON N

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 uncertain 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.

CONSOLIDATED EDISON

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CONSOLIDATED EDISON N has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for CONSOLIDATED EDISON N investors.

Pair Trading with Merck and CONSOLIDATED

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

The idea behind Merck Company and CONSOLIDATED EDISON N 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.