Correlation Between Merck and Waste

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

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

Diversification Opportunities for Merck and Waste

0.07

Correlation Coefficient

Merck  Waste

Significant diversification

The 3 months correlation between Merck and Waste is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Waste Pro USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waste Pro USA 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 Waste. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waste Pro USA has no effect on the direction of Merck i.e., Merck and Waste go up and down completely randomly.

Pair Corralation between Merck and Waste

Considering the 90-day investment horizon Merck Company is expected to generate 0.88 times more return on investment than Waste. However, Merck Company is 1.13 times less risky than Waste. It trades about -0.17 of its potential returns per unit of risk. Waste Pro USA is currently generating about -0.16 per unit of risk. If you would invest  11,503  in Merck Company on September 4, 2024 and sell it today you would lose (1,442) from holding Merck Company or give up 12.54% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	60.32%
Values	Daily Returns

Merck Company  vs.  Waste Pro USA

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 weak 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.

Waste Pro USA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Waste Pro USA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for Waste Pro USA investors.

Pair Trading with Merck and Waste

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

The idea behind Merck Company and Waste Pro USA 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.