Correlation Between PUBLIC STORAGE and Merck

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

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

Diversification Opportunities for PUBLIC STORAGE and Merck

0.74

Correlation Coefficient

PUBLIC STORAGE  Merck

Poor diversification

The 3 months correlation between PUBLIC and Merck is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding PUBLIC STORAGE PRFO and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and PUBLIC STORAGE 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 PUBLIC STORAGE PRFO 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 PUBLIC STORAGE i.e., PUBLIC STORAGE and Merck go up and down completely randomly.

Pair Corralation between PUBLIC STORAGE and Merck

Assuming the 90 days trading horizon PUBLIC STORAGE PRFO is expected to generate 0.85 times more return on investment than Merck. However, PUBLIC STORAGE PRFO is 1.18 times less risky than Merck. It trades about -0.06 of its potential returns per unit of risk. Merck Company is currently generating about -0.07 per unit of risk. If you would invest  1,516  in PUBLIC STORAGE PRFO on December 29, 2024 and sell it today you would lose (76.00) from holding PUBLIC STORAGE PRFO or give up 5.01% of portfolio value over 90 days.

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

PUBLIC STORAGE PRFO  vs.  Merck Company

PUBLIC STORAGE PRFO

Risk-Adjusted Performance

Very Weak

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

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. In spite of latest fragile performance, the Stock's forward-looking signals remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with PUBLIC STORAGE and Merck

The main advantage of trading using opposite PUBLIC STORAGE and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PUBLIC STORAGE 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 PUBLIC STORAGE PRFO 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.

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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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..