Correlation Between Merck and ALVGR

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

By analyzing existing cross correlation between Merck Company and ALVGR 35, you can compare the effects of market volatilities on Merck and ALVGR 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 ALVGR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and ALVGR.

Diversification Opportunities for Merck and ALVGR

-0.45

Correlation Coefficient

Merck  ALVGR

Very good diversification

The 3 months correlation between Merck and ALVGR is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and ALVGR 35 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALVGR 35 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 ALVGR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALVGR 35 has no effect on the direction of Merck i.e., Merck and ALVGR go up and down completely randomly.

Pair Corralation between Merck and ALVGR

Considering the 90-day investment horizon Merck Company is expected to generate 0.51 times more return on investment than ALVGR. However, Merck Company is 1.96 times less risky than ALVGR. It trades about -0.16 of its potential returns per unit of risk. ALVGR 35 is currently generating about -0.18 per unit of risk. If you would invest  11,448  in Merck Company on September 12, 2024 and sell it today you would lose (1,348) from holding Merck Company or give up 11.77% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	42.86%
Values	Daily Returns

Merck Company  vs.  ALVGR 35

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.

ALVGR 35

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ALVGR 35 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile 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 ALVGR 35 investors.

Pair Trading with Merck and ALVGR

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

The idea behind Merck Company and ALVGR 35 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 CEOs Directory module to screen CEOs from public companies around the world.