Correlation Between Merck and NATIONAL

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

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

Diversification Opportunities for Merck and NATIONAL

-0.5

Correlation Coefficient

Merck  NATIONAL

Very good diversification

The 3 months correlation between Merck and NATIONAL is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and NATIONAL RURAL UTILS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NATIONAL RURAL UTILS 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 NATIONAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NATIONAL RURAL UTILS has no effect on the direction of Merck i.e., Merck and NATIONAL go up and down completely randomly.

Pair Corralation between Merck and NATIONAL

Considering the 90-day investment horizon Merck Company is expected to generate 0.68 times more return on investment than NATIONAL. However, Merck Company is 1.48 times less risky than NATIONAL. It trades about -0.16 of its potential returns per unit of risk. NATIONAL RURAL UTILS is currently generating about -0.21 per unit of risk. If you would invest  11,581  in Merck Company on September 3, 2024 and sell it today you would lose (1,417) from holding Merck Company or give up 12.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	28.13%
Values	Daily Returns

Merck Company  vs.  NATIONAL RURAL UTILS

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 unsteady 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.

NATIONAL RURAL UTILS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NATIONAL RURAL UTILS 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 NATIONAL RURAL UTILS investors.

Pair Trading with Merck and NATIONAL

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

The idea behind Merck Company and NATIONAL RURAL UTILS 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.