Correlation Between Poste Italiane and Merck

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

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

Diversification Opportunities for Poste Italiane and Merck

-0.75

Correlation Coefficient

Poste Italiane  Merck

Pay attention - limited upside

The 3 months correlation between Poste and Merck is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Poste Italiane SpA and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Poste Italiane 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 Poste Italiane SpA 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 Poste Italiane i.e., Poste Italiane and Merck go up and down completely randomly.

Pair Corralation between Poste Italiane and Merck

Assuming the 90 days horizon Poste Italiane SpA is expected to generate 0.57 times more return on investment than Merck. However, Poste Italiane SpA is 1.77 times less risky than Merck. It trades about 0.19 of its potential returns per unit of risk. Merck Company is currently generating about -0.14 per unit of risk. If you would invest  1,221  in Poste Italiane SpA on September 13, 2024 and sell it today you would earn a total of  153.00  from holding Poste Italiane SpA or generate 12.53% return on investment over 90 days.

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

Poste Italiane SpA  vs.  Merck Company

Poste Italiane SpA

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Poste Italiane SpA are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Poste Italiane may actually be approaching a critical reversion point that can send shares even higher in January 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. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Poste Italiane and Merck

The main advantage of trading using opposite Poste Italiane and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Poste Italiane 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 Poste Italiane SpA 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.