Correlation Between Lord Abbett and Merck

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

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

Diversification Opportunities for Lord Abbett and Merck

-0.87

Correlation Coefficient

Lord Abbett  Merck

Pay attention - limited upside

The 3 months correlation between Lord and Merck is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding Lord Abbett Ultra and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Lord Abbett 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 Lord Abbett Ultra 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 Lord Abbett i.e., Lord Abbett and Merck go up and down completely randomly.

Pair Corralation between Lord Abbett and Merck

Assuming the 90 days horizon Lord Abbett Ultra is expected to generate 0.02 times more return on investment than Merck. However, Lord Abbett Ultra is 64.63 times less risky than Merck. It trades about 0.22 of its potential returns per unit of risk. Merck Company is currently generating about -0.02 per unit of risk. If you would invest  1,002  in Lord Abbett Ultra on September 12, 2024 and sell it today you would earn a total of  1.00  from holding Lord Abbett Ultra or generate 0.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Lord Abbett Ultra  vs.  Merck Company

Lord Abbett Ultra

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lord Abbett Ultra are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Lord Abbett is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Lord Abbett and Merck

The main advantage of trading using opposite Lord Abbett and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lord Abbett 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 Lord Abbett Ultra 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.