Correlation Between INFORMATION SVC and Merck

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

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

Diversification Opportunities for INFORMATION SVC and Merck

-0.71

Correlation Coefficient

INFORMATION SVC  Merck

Pay attention - limited upside

The 3 months correlation between INFORMATION and Merck is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding INFORMATION SVC GRP and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and INFORMATION SVC 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 INFORMATION SVC GRP 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 INFORMATION SVC i.e., INFORMATION SVC and Merck go up and down completely randomly.

Pair Corralation between INFORMATION SVC and Merck

Assuming the 90 days horizon INFORMATION SVC GRP is expected to generate 1.85 times more return on investment than Merck. However, INFORMATION SVC is 1.85 times more volatile than Merck Company. It trades about 0.09 of its potential returns per unit of risk. Merck Company is currently generating about -0.12 per unit of risk. If you would invest  278.00  in INFORMATION SVC GRP on October 26, 2024 and sell it today you would earn a total of  30.00  from holding INFORMATION SVC GRP or generate 10.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

INFORMATION SVC GRP  vs.  Merck Company

INFORMATION SVC GRP

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in INFORMATION SVC GRP are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, INFORMATION SVC may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 uncertain 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 INFORMATION SVC and Merck

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