Correlation Between Merck and TOPTB

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

By analyzing existing cross correlation between Merck Company and TOPTB 5375 20 NOV 48, you can compare the effects of market volatilities on Merck and TOPTB 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 TOPTB. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and TOPTB.

Diversification Opportunities for Merck and TOPTB

0.29

Correlation Coefficient

Merck  TOPTB

Modest diversification

The 3 months correlation between Merck and TOPTB is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and TOPTB 5375 20 NOV 48 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TOPTB 5375 20 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 TOPTB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TOPTB 5375 20 has no effect on the direction of Merck i.e., Merck and TOPTB go up and down completely randomly.

Pair Corralation between Merck and TOPTB

Considering the 90-day investment horizon Merck Company is expected to under-perform the TOPTB. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.64 times less risky than TOPTB. The stock trades about -0.07 of its potential returns per unit of risk. The TOPTB 5375 20 NOV 48 is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  9,187  in TOPTB 5375 20 NOV 48 on December 29, 2024 and sell it today you would lose (241.00) from holding TOPTB 5375 20 NOV 48 or give up 2.62% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	39.34%
Values	Daily Returns

Merck Company  vs.  TOPTB 5375 20 NOV 48

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.

TOPTB 5375 20

Risk-Adjusted Performance

Very Weak

Over the last 90 days TOPTB 5375 20 NOV 48 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, TOPTB is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Merck and TOPTB

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

The idea behind Merck Company and TOPTB 5375 20 NOV 48 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.