Correlation Between Merck and 512807AN8

Can any of the company-specific risk be diversified away by investing in both Merck and 512807AN8 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 512807AN8 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Merck Company and LAM RESH P, you can compare the effects of market volatilities on Merck and 512807AN8 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 512807AN8. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and 512807AN8.

Diversification Opportunities for Merck and 512807AN8

0.17

Correlation Coefficient

Merck  512807AN8

Average diversification

The 3 months correlation between Merck and 512807AN8 is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and LAM RESH P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LAM RESH P 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 512807AN8. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LAM RESH P has no effect on the direction of Merck i.e., Merck and 512807AN8 go up and down completely randomly.

Pair Corralation between Merck and 512807AN8

Considering the 90-day investment horizon Merck Company is expected to under-perform the 512807AN8. In addition to that, Merck is 10.28 times more volatile than LAM RESH P. It trades about -0.05 of its total potential returns per unit of risk. LAM RESH P is currently generating about -0.01 per unit of volatility. If you would invest  9,980  in LAM RESH P on October 4, 2024 and sell it today you would lose (2.00) from holding LAM RESH P or give up 0.02% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	90.91%
Values	Daily Returns

Merck Company  vs.  LAM RESH P

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.

LAM RESH P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LAM RESH P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 512807AN8 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Merck and 512807AN8

The main advantage of trading using opposite Merck and 512807AN8 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, 512807AN8 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 512807AN8 will offset losses from the drop in 512807AN8's long position.

The idea behind Merck Company and LAM RESH P 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..