Correlation Between Merck and MASSACHUSETTS

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

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

Diversification Opportunities for Merck and MASSACHUSETTS

0.84

Correlation Coefficient

Merck  MASSACHUSETTS

Very poor diversification

The 3 months correlation between Merck and MASSACHUSETTS is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and MASSACHUSETTS INST TECHNOLOGY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MASSACHUSETTS INST 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 MASSACHUSETTS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MASSACHUSETTS INST has no effect on the direction of Merck i.e., Merck and MASSACHUSETTS go up and down completely randomly.

Pair Corralation between Merck and MASSACHUSETTS

Considering the 90-day investment horizon Merck Company is expected to under-perform the MASSACHUSETTS. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.07 times less risky than MASSACHUSETTS. The stock trades about -0.17 of its potential returns per unit of risk. The MASSACHUSETTS INST TECHNOLOGY is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  11,361  in MASSACHUSETTS INST TECHNOLOGY on September 4, 2024 and sell it today you would lose (887.00) from holding MASSACHUSETTS INST TECHNOLOGY or give up 7.81% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	93.75%
Values	Daily Returns

Merck Company  vs.  MASSACHUSETTS INST TECHNOLOGY

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 weak 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.

MASSACHUSETTS INST

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MASSACHUSETTS INST TECHNOLOGY has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for MASSACHUSETTS INST TECHNOLOGY investors.

Pair Trading with Merck and MASSACHUSETTS

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

The idea behind Merck Company and MASSACHUSETTS INST TECHNOLOGY 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.