Correlation Between Merck and Innovator Equity

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

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

Diversification Opportunities for Merck and Innovator Equity

-0.48

Correlation Coefficient

Merck  Innovator Equity

Very good diversification

The 3 months correlation between Merck and Innovator is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Innovator Equity Defined in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator Equity Defined 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 Innovator Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator Equity Defined has no effect on the direction of Merck i.e., Merck and Innovator Equity go up and down completely randomly.

Pair Corralation between Merck and Innovator Equity

Considering the 90-day investment horizon Merck Company is expected to under-perform the Innovator Equity. In addition to that, Merck is 8.55 times more volatile than Innovator Equity Defined. It trades about -0.07 of its total potential returns per unit of risk. Innovator Equity Defined is currently generating about -0.04 per unit of volatility. If you would invest  2,516  in Innovator Equity Defined on December 29, 2024 and sell it today you would lose (14.00) from holding Innovator Equity Defined or give up 0.56% 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.  Innovator Equity Defined

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.

Innovator Equity Defined

Risk-Adjusted Performance

Very Weak

Over the last 90 days Innovator Equity Defined has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Innovator Equity is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Merck and Innovator Equity

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

The idea behind Merck Company and Innovator Equity Defined 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.