Correlation Between Merck and Vista Outdoor

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

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

Diversification Opportunities for Merck and Vista Outdoor

0.6

Correlation Coefficient

Merck  Vista Outdoor

Poor diversification

The 3 months correlation between Merck and Vista is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Vista Outdoor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vista Outdoor 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 Vista Outdoor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vista Outdoor has no effect on the direction of Merck i.e., Merck and Vista Outdoor go up and down completely randomly.

Pair Corralation between Merck and Vista Outdoor

Considering the 90-day investment horizon Merck Company is expected to under-perform the Vista Outdoor. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.09 times less risky than Vista Outdoor. The stock trades about -0.12 of its potential returns per unit of risk. The Vista Outdoor is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  3,641  in Vista Outdoor on October 8, 2024 and sell it today you would earn a total of  822.00  from holding Vista Outdoor or generate 22.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	80.0%
Values	Daily Returns

Merck Company  vs.  Vista Outdoor

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 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.

Vista Outdoor

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Vista Outdoor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Vista Outdoor is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Merck and Vista Outdoor

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

The idea behind Merck Company and Vista Outdoor 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.