Correlation Between Merck and 718549AB4

Can any of the company-specific risk be diversified away by investing in both Merck and 718549AB4 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 718549AB4 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Merck Company and Phillips 66 Partners, you can compare the effects of market volatilities on Merck and 718549AB4 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 718549AB4. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and 718549AB4.

Diversification Opportunities for Merck and 718549AB4

-0.35

Correlation Coefficient

Merck  718549AB4

Very good diversification

The 3 months correlation between Merck and 718549AB4 is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Phillips 66 Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Phillips 66 Partners 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 718549AB4. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Phillips 66 Partners has no effect on the direction of Merck i.e., Merck and 718549AB4 go up and down completely randomly.

Pair Corralation between Merck and 718549AB4

Considering the 90-day investment horizon Merck Company is expected to under-perform the 718549AB4. In addition to that, Merck is 1.68 times more volatile than Phillips 66 Partners. It trades about -0.18 of its total potential returns per unit of risk. Phillips 66 Partners is currently generating about -0.1 per unit of volatility. If you would invest  9,908  in Phillips 66 Partners on September 15, 2024 and sell it today you would lose (243.00) from holding Phillips 66 Partners or give up 2.45% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	53.13%
Values	Daily Returns

Merck Company  vs.  Phillips 66 Partners

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.

Phillips 66 Partners

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Phillips 66 Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 718549AB4 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 718549AB4

The main advantage of trading using opposite Merck and 718549AB4 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, 718549AB4 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 718549AB4 will offset losses from the drop in 718549AB4's long position.

The idea behind Merck Company and Phillips 66 Partners 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 Global Correlations module to find global opportunities by holding instruments from different markets.