Correlation Between Merck and HEWLETT

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

By analyzing existing cross correlation between Merck Company and HEWLETT PACKARD 6, you can compare the effects of market volatilities on Merck and HEWLETT 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 HEWLETT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and HEWLETT.

Diversification Opportunities for Merck and HEWLETT

0.23

Correlation Coefficient

Merck  HEWLETT

Modest diversification

The 3 months correlation between Merck and HEWLETT is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and HEWLETT PACKARD 6 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HEWLETT PACKARD 6 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 HEWLETT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HEWLETT PACKARD 6 has no effect on the direction of Merck i.e., Merck and HEWLETT go up and down completely randomly.

Pair Corralation between Merck and HEWLETT

Considering the 90-day investment horizon Merck Company is expected to under-perform the HEWLETT. In addition to that, Merck is 2.04 times more volatile than HEWLETT PACKARD 6. It trades about -0.06 of its total potential returns per unit of risk. HEWLETT PACKARD 6 is currently generating about -0.07 per unit of volatility. If you would invest  10,521  in HEWLETT PACKARD 6 on December 1, 2024 and sell it today you would lose (401.00) from holding HEWLETT PACKARD 6 or give up 3.81% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.77%
Values	Daily Returns

Merck Company  vs.  HEWLETT PACKARD 6

Merck Company

Risk-Adjusted Performance

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.

HEWLETT PACKARD 6

Risk-Adjusted Performance

Very Weak

Over the last 90 days HEWLETT PACKARD 6 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, HEWLETT 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 HEWLETT

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

The idea behind Merck Company and HEWLETT PACKARD 6 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.