Correlation Between Micron Technology and Merck

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

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

Diversification Opportunities for Micron Technology and Merck

-0.33

Correlation Coefficient

Micron Technology  Merck

Very good diversification

The 3 months correlation between Micron and Merck is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Micron Technology and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Micron Technology 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 Micron Technology are associated (or correlated) with Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Micron Technology i.e., Micron Technology and Merck go up and down completely randomly.

Pair Corralation between Micron Technology and Merck

Assuming the 90 days horizon Micron Technology is expected to generate 2.65 times more return on investment than Merck. However, Micron Technology is 2.65 times more volatile than Merck Company. It trades about 0.02 of its potential returns per unit of risk. Merck Company is currently generating about -0.11 per unit of risk. If you would invest  182,578  in Micron Technology on September 24, 2024 and sell it today you would lose (1,178) from holding Micron Technology or give up 0.65% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Micron Technology  vs.  Merck Company

Micron Technology

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Micron Technology are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong primary indicators, Micron Technology is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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. In spite of latest weak performance, the Stock's forward-looking signals remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Micron Technology and Merck

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

The idea behind Micron Technology and Merck Company 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.

Check out your portfolio center.

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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.