Correlation Between Merck and 828807DT1

Can any of the company-specific risk be diversified away by investing in both Merck and 828807DT1 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 828807DT1 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Merck Company and SPG 265 01 FEB 32, you can compare the effects of market volatilities on Merck and 828807DT1 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 828807DT1. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and 828807DT1.

Diversification Opportunities for Merck and 828807DT1

-0.44

Correlation Coefficient

Merck  828807DT1

Very good diversification

The 3 months correlation between Merck and 828807DT1 is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and SPG 265 01 FEB 32 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPG 265 01 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 828807DT1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPG 265 01 has no effect on the direction of Merck i.e., Merck and 828807DT1 go up and down completely randomly.

Pair Corralation between Merck and 828807DT1

Considering the 90-day investment horizon Merck Company is expected to under-perform the 828807DT1. In addition to that, Merck is 2.5 times more volatile than SPG 265 01 FEB 32. It trades about -0.1 of its total potential returns per unit of risk. SPG 265 01 FEB 32 is currently generating about -0.03 per unit of volatility. If you would invest  8,520  in SPG 265 01 FEB 32 on December 26, 2024 and sell it today you would lose (142.00) from holding SPG 265 01 FEB 32 or give up 1.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Merck Company  vs.  SPG 265 01 FEB 32

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 latest abnormal 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.

SPG 265 01

Risk-Adjusted Performance

Insignificant

Over the last 90 days SPG 265 01 FEB 32 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 828807DT1 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 828807DT1

The main advantage of trading using opposite Merck and 828807DT1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, 828807DT1 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 828807DT1 will offset losses from the drop in 828807DT1's long position.

The idea behind Merck Company and SPG 265 01 FEB 32 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.