Correlation Between Merck and LOEWS

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

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

Diversification Opportunities for Merck and LOEWS

-0.38

Correlation Coefficient

Merck  LOEWS

Very good diversification

The 3 months correlation between Merck and LOEWS is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and LOEWS P 6 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOEWS P 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 LOEWS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOEWS P 6 has no effect on the direction of Merck i.e., Merck and LOEWS go up and down completely randomly.

Pair Corralation between Merck and LOEWS

Considering the 90-day investment horizon Merck Company is expected to under-perform the LOEWS. In addition to that, Merck is 2.55 times more volatile than LOEWS P 6. It trades about -0.05 of its total potential returns per unit of risk. LOEWS P 6 is currently generating about 0.0 per unit of volatility. If you would invest  10,657  in LOEWS P 6 on December 22, 2024 and sell it today you would lose (11.00) from holding LOEWS P 6 or give up 0.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.16%
Values	Daily Returns

Merck Company  vs.  LOEWS P 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 quite persistent basic indicators, Merck is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

LOEWS P 6

Risk-Adjusted Performance

Very Weak

Over the last 90 days LOEWS P 6 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, LOEWS is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Merck and LOEWS

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

The idea behind Merck Company and LOEWS P 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.