Correlation Between Goldman Sachs and Merrill Lynch

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

By analyzing existing cross correlation between The Goldman Sachs and Merrill Lynch Capital, you can compare the effects of market volatilities on Goldman Sachs and Merrill Lynch 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 Goldman Sachs with a short position of Merrill Lynch. Check out your portfolio center. Please also check ongoing floating volatility patterns of Goldman Sachs and Merrill Lynch.

Diversification Opportunities for Goldman Sachs and Merrill Lynch

0.78

Correlation Coefficient

Goldman Sachs  Merrill Lynch

Poor diversification

The 3 months correlation between Goldman and Merrill is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding The Goldman Sachs and Merrill Lynch Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merrill Lynch Capital and Goldman Sachs 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 Goldman Sachs are associated (or correlated) with Merrill Lynch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merrill Lynch Capital has no effect on the direction of Goldman Sachs i.e., Goldman Sachs and Merrill Lynch go up and down completely randomly.

Pair Corralation between Goldman Sachs and Merrill Lynch

Assuming the 90 days horizon The Goldman Sachs is expected to generate 1.77 times more return on investment than Merrill Lynch. However, Goldman Sachs is 1.77 times more volatile than Merrill Lynch Capital. It trades about 0.16 of its potential returns per unit of risk. Merrill Lynch Capital is currently generating about 0.11 per unit of risk. If you would invest  2,275  in The Goldman Sachs on September 2, 2024 and sell it today you would earn a total of  190.00  from holding The Goldman Sachs or generate 8.35% return on investment over 90 days.

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

The Goldman Sachs  vs.  Merrill Lynch Capital

Goldman Sachs

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Goldman Sachs are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Goldman Sachs may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Merrill Lynch Capital

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Merrill Lynch Capital are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Merrill Lynch is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Goldman Sachs and Merrill Lynch

The main advantage of trading using opposite Goldman Sachs and Merrill Lynch positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Goldman Sachs position performs unexpectedly, Merrill Lynch 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 Merrill Lynch will offset losses from the drop in Merrill Lynch's long position.

The idea behind The Goldman Sachs and Merrill Lynch Capital 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.