Correlation Between Merck and 26442CAR5

Can any of the company-specific risk be diversified away by investing in both Merck and 26442CAR5 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 26442CAR5 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Merck Company and DUKE ENERGY CAROLINAS, you can compare the effects of market volatilities on Merck and 26442CAR5 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 26442CAR5. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and 26442CAR5.

Diversification Opportunities for Merck and 26442CAR5

0.2

Correlation Coefficient

Merck  26442CAR5

Modest diversification

The 3 months correlation between Merck and 26442CAR5 is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and DUKE ENERGY CAROLINAS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DUKE ENERGY CAROLINAS 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 26442CAR5. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DUKE ENERGY CAROLINAS has no effect on the direction of Merck i.e., Merck and 26442CAR5 go up and down completely randomly.

Pair Corralation between Merck and 26442CAR5

Considering the 90-day investment horizon Merck Company is expected to generate 1.26 times more return on investment than 26442CAR5. However, Merck is 1.26 times more volatile than DUKE ENERGY CAROLINAS. It trades about -0.1 of its potential returns per unit of risk. DUKE ENERGY CAROLINAS is currently generating about -0.13 per unit of risk. If you would invest  10,766  in Merck Company on October 8, 2024 and sell it today you would lose (794.00) from holding Merck Company or give up 7.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	61.29%
Values	Daily Returns

Merck Company  vs.  DUKE ENERGY CAROLINAS

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.

DUKE ENERGY CAROLINAS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DUKE ENERGY CAROLINAS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent 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 DUKE ENERGY CAROLINAS investors.

Pair Trading with Merck and 26442CAR5

The main advantage of trading using opposite Merck and 26442CAR5 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, 26442CAR5 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 26442CAR5 will offset losses from the drop in 26442CAR5's long position.

The idea behind Merck Company and DUKE ENERGY CAROLINAS 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.