Correlation Between Merck and Wanger International

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

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

Diversification Opportunities for Merck and Wanger International

0.91

Correlation Coefficient

Merck  Wanger International

Almost no diversification

The 3 months correlation between Merck and Wanger is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Wanger International Wanger in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wanger International 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 Wanger International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wanger International has no effect on the direction of Merck i.e., Merck and Wanger International go up and down completely randomly.

Pair Corralation between Merck and Wanger International

Considering the 90-day investment horizon Merck Company is expected to under-perform the Wanger International. In addition to that, Merck is 1.47 times more volatile than Wanger International Wanger. It trades about -0.19 of its total potential returns per unit of risk. Wanger International Wanger is currently generating about -0.24 per unit of volatility. If you would invest  2,135  in Wanger International Wanger on September 19, 2024 and sell it today you would lose (252.00) from holding Wanger International Wanger or give up 11.8% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Merck Company  vs.  Wanger International Wanger

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.

Wanger International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wanger International Wanger has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Merck and Wanger International

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

The idea behind Merck Company and Wanger International Wanger 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.