Correlation Between 00108WAF7 and Merck

Can any of the company-specific risk be diversified away by investing in both 00108WAF7 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 00108WAF7 and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AEP TEX INC and Merck Company, you can compare the effects of market volatilities on 00108WAF7 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 00108WAF7 with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of 00108WAF7 and Merck.

Diversification Opportunities for 00108WAF7 and Merck

0.28

Correlation Coefficient

00108WAF7  Merck

Modest diversification

The 3 months correlation between 00108WAF7 and Merck is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding AEP TEX INC and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and 00108WAF7 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 AEP TEX INC 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 00108WAF7 i.e., 00108WAF7 and Merck go up and down completely randomly.

Pair Corralation between 00108WAF7 and Merck

Assuming the 90 days trading horizon AEP TEX INC is expected to generate 0.4 times more return on investment than Merck. However, AEP TEX INC is 2.47 times less risky than Merck. It trades about 0.22 of its potential returns per unit of risk. Merck Company is currently generating about -0.16 per unit of risk. If you would invest  7,270  in AEP TEX INC on November 29, 2024 and sell it today you would earn a total of  269.00  from holding AEP TEX INC or generate 3.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	80.95%
Values	Daily Returns

AEP TEX INC  vs.  Merck Company

AEP TEX INC

Risk-Adjusted Performance

Very Weak

Over the last 90 days AEP TEX INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 00108WAF7 is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

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 abnormal 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.

Pair Trading with 00108WAF7 and Merck

The main advantage of trading using opposite 00108WAF7 and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 00108WAF7 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 AEP TEX INC 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.