Correlation Between Merck and 26442EAG5

Can any of the company-specific risk be diversified away by investing in both Merck and 26442EAG5 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 26442EAG5 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 OHIO, you can compare the effects of market volatilities on Merck and 26442EAG5 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 26442EAG5. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and 26442EAG5.

Diversification Opportunities for Merck and 26442EAG5

0.59

Correlation Coefficient

Merck  26442EAG5

Very weak diversification

The 3 months correlation between Merck and 26442EAG5 is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and DUKE ENERGY OHIO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DUKE ENERGY OHIO 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 26442EAG5. 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 OHIO has no effect on the direction of Merck i.e., Merck and 26442EAG5 go up and down completely randomly.

Pair Corralation between Merck and 26442EAG5

Considering the 90-day investment horizon Merck Company is expected to generate 0.88 times more return on investment than 26442EAG5. However, Merck Company is 1.14 times less risky than 26442EAG5. It trades about -0.09 of its potential returns per unit of risk. DUKE ENERGY OHIO is currently generating about -0.15 per unit of risk. If you would invest  10,554  in Merck Company on October 23, 2024 and sell it today you would lose (762.00) from holding Merck Company or give up 7.22% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	71.67%
Values	Daily Returns

Merck Company  vs.  DUKE ENERGY OHIO

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 unsteady 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 OHIO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DUKE ENERGY OHIO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for DUKE ENERGY OHIO investors.

Pair Trading with Merck and 26442EAG5

The main advantage of trading using opposite Merck and 26442EAG5 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, 26442EAG5 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 26442EAG5 will offset losses from the drop in 26442EAG5's long position.

The idea behind Merck Company and DUKE ENERGY OHIO 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.