Correlation Between Merck and Scientific

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

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

Diversification Opportunities for Merck and Scientific

0.2

Correlation Coefficient

Merck  Scientific

Modest diversification

The 3 months correlation between Merck and Scientific is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Scientific Games International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scientific Games Int 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 Scientific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scientific Games Int has no effect on the direction of Merck i.e., Merck and Scientific go up and down completely randomly.

Pair Corralation between Merck and Scientific

Considering the 90-day investment horizon Merck Company is expected to under-perform the Scientific. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 38.13 times less risky than Scientific. The stock trades about -0.01 of its potential returns per unit of risk. The Scientific Games International is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  10,020  in Scientific Games International on October 4, 2024 and sell it today you would lose (340.00) from holding Scientific Games International or give up 3.39% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	89.31%
Values	Daily Returns

Merck Company  vs.  Scientific Games International

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 weak 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.

Scientific Games Int

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Scientific Games International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady 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 Scientific Games International investors.

Pair Trading with Merck and Scientific

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

The idea behind Merck Company and Scientific Games International 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.