Correlation Between Merck and WisdomTree Issuer

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

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

Diversification Opportunities for Merck and WisdomTree Issuer

-0.46

Correlation Coefficient

Merck  WisdomTree Issuer

Very good diversification

The 3 months correlation between Merck and WisdomTree is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and WisdomTree Issuer ICAV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Issuer ICAV 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 WisdomTree Issuer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Issuer ICAV has no effect on the direction of Merck i.e., Merck and WisdomTree Issuer go up and down completely randomly.

Pair Corralation between Merck and WisdomTree Issuer

Considering the 90-day investment horizon Merck Company is expected to under-perform the WisdomTree Issuer. In addition to that, Merck is 3.43 times more volatile than WisdomTree Issuer ICAV. It trades about -0.07 of its total potential returns per unit of risk. WisdomTree Issuer ICAV is currently generating about -0.06 per unit of volatility. If you would invest  4,178  in WisdomTree Issuer ICAV on December 28, 2024 and sell it today you would lose (77.00) from holding WisdomTree Issuer ICAV or give up 1.84% of portfolio value over 90 days.

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

Merck Company  vs.  WisdomTree Issuer ICAV

Merck Company

Risk-Adjusted Performance

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 uncertain 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.

WisdomTree Issuer ICAV

Risk-Adjusted Performance

Very Weak

Over the last 90 days WisdomTree Issuer ICAV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, WisdomTree Issuer is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Merck and WisdomTree Issuer

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

The idea behind Merck Company and WisdomTree Issuer ICAV 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.