Correlation Between Merck and LEVEL

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

By analyzing existing cross correlation between Merck Company and LEVEL 3 FING, you can compare the effects of market volatilities on Merck and LEVEL 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 LEVEL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and LEVEL.

Diversification Opportunities for Merck and LEVEL

-0.41

Correlation Coefficient

Merck  LEVEL

Very good diversification

The 3 months correlation between Merck and LEVEL is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and LEVEL 3 FING in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LEVEL 3 FING 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 LEVEL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LEVEL 3 FING has no effect on the direction of Merck i.e., Merck and LEVEL go up and down completely randomly.

Pair Corralation between Merck and LEVEL

Considering the 90-day investment horizon Merck Company is expected to generate 0.13 times more return on investment than LEVEL. However, Merck Company is 7.66 times less risky than LEVEL. It trades about 0.21 of its potential returns per unit of risk. LEVEL 3 FING is currently generating about -0.3 per unit of risk. If you would invest  9,656  in Merck Company on September 17, 2024 and sell it today you would earn a total of  544.00  from holding Merck Company or generate 5.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.0%
Values	Daily Returns

Merck Company  vs.  LEVEL 3 FING

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 uncertain performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

LEVEL 3 FING

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LEVEL 3 FING 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 January 2025. The current disturbance may also be a sign of long term up-swing for LEVEL 3 FING investors.

Pair Trading with Merck and LEVEL

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

The idea behind Merck Company and LEVEL 3 FING 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.