Correlation Between Merck and CROWN

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

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

Diversification Opportunities for Merck and CROWN

0.34

Correlation Coefficient

Merck  CROWN

Weak diversification

The 3 months correlation between Merck and CROWN is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and CROWN CASTLE INTERNATIONAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CROWN CASTLE INTERNA 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 CROWN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CROWN CASTLE INTERNA has no effect on the direction of Merck i.e., Merck and CROWN go up and down completely randomly.

Pair Corralation between Merck and CROWN

Considering the 90-day investment horizon Merck Company is expected to under-perform the CROWN. In addition to that, Merck is 2.41 times more volatile than CROWN CASTLE INTERNATIONAL. It trades about -0.01 of its total potential returns per unit of risk. CROWN CASTLE INTERNATIONAL is currently generating about -0.01 per unit of volatility. If you would invest  9,055  in CROWN CASTLE INTERNATIONAL on October 4, 2024 and sell it today you would lose (330.00) from holding CROWN CASTLE INTERNATIONAL or give up 3.64% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Merck Company  vs.  CROWN CASTLE INTERNATIONAL

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.

CROWN CASTLE INTERNA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Merck and CROWN

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

The idea behind Merck Company and CROWN CASTLE INTERNATIONAL 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.