Correlation Between Merck and UNITEDHEALTH

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

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

Diversification Opportunities for Merck and UNITEDHEALTH

0.62

Correlation Coefficient

Merck  UNITEDHEALTH

Poor diversification

The 3 months correlation between Merck and UNITEDHEALTH is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and UNITEDHEALTH GROUP INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UNITEDHEALTH GROUP INC 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 UNITEDHEALTH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UNITEDHEALTH GROUP INC has no effect on the direction of Merck i.e., Merck and UNITEDHEALTH go up and down completely randomly.

Pair Corralation between Merck and UNITEDHEALTH

Considering the 90-day investment horizon Merck Company is expected to under-perform the UNITEDHEALTH. In addition to that, Merck is 2.25 times more volatile than UNITEDHEALTH GROUP INC. It trades about -0.21 of its total potential returns per unit of risk. UNITEDHEALTH GROUP INC is currently generating about -0.16 per unit of volatility. If you would invest  9,993  in UNITEDHEALTH GROUP INC on September 18, 2024 and sell it today you would lose (523.00) from holding UNITEDHEALTH GROUP INC or give up 5.23% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.83%
Values	Daily Returns

Merck Company  vs.  UNITEDHEALTH GROUP INC

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.

UNITEDHEALTH GROUP INC

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Merck and UNITEDHEALTH

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

The idea behind Merck Company and UNITEDHEALTH GROUP INC 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.