Correlation Between Este Lauder and Merck

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

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

Diversification Opportunities for Este Lauder and Merck

0.75

Correlation Coefficient

Este Lauder  Merck

Poor diversification

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

Pair Corralation between Este Lauder and Merck

Assuming the 90 days trading horizon The Este Lauder is expected to under-perform the Merck. In addition to that, Este Lauder is 2.06 times more volatile than Merck Company. It trades about -0.07 of its total potential returns per unit of risk. Merck Company is currently generating about -0.11 per unit of volatility. If you would invest  11,871  in Merck Company on September 15, 2024 and sell it today you would lose (2,251) from holding Merck Company or give up 18.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.24%
Values	Daily Returns

The Este Lauder  vs.  Merck Company

Este Lauder

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Este Lauder are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong forward indicators, Este Lauder is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

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 latest inconsistent performance, the Stock's forward-looking signals remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Este Lauder and Merck

The main advantage of trading using opposite Este Lauder and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Este Lauder 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 The Este Lauder 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.