Correlation Between Telecomunicaes Brasileiras and Merck

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

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

Diversification Opportunities for Telecomunicaes Brasileiras and Merck

-0.38

Correlation Coefficient

Telecomunicaes Brasileiras  Merck

Very good diversification

The 3 months correlation between Telecomunicaes and Merck is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Telecomunicaes Brasileiras SA and Merck Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck and Telecomunicaes Brasileiras 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 Telecomunicaes Brasileiras SA 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 has no effect on the direction of Telecomunicaes Brasileiras i.e., Telecomunicaes Brasileiras and Merck go up and down completely randomly.

Pair Corralation between Telecomunicaes Brasileiras and Merck

Assuming the 90 days trading horizon Telecomunicaes Brasileiras SA is expected to under-perform the Merck. But the preferred stock apears to be less risky and, when comparing its historical volatility, Telecomunicaes Brasileiras SA is 1.01 times less risky than Merck. The preferred stock trades about -0.17 of its potential returns per unit of risk. The Merck Co is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  7,411  in Merck Co on October 25, 2024 and sell it today you would lose (311.00) from holding Merck Co or give up 4.2% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.31%
Values	Daily Returns

Telecomunicaes Brasileiras SA  vs.  Merck Co

Telecomunicaes Brasileiras

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telecomunicaes Brasileiras SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Preferred Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Merck

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merck Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Merck is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Telecomunicaes Brasileiras and Merck

The main advantage of trading using opposite Telecomunicaes Brasileiras and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Telecomunicaes Brasileiras 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 Telecomunicaes Brasileiras SA and Merck Co 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.