Correlation Between Merck and JD

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

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

Diversification Opportunities for Merck and JD

-0.35

Correlation Coefficient

Merck  JD

Very good diversification

The 3 months correlation between Merck and JD is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and JD Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JD Inc and Merck 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 Merck Company are associated (or correlated) with JD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JD Inc has no effect on the direction of Merck i.e., Merck and JD go up and down completely randomly.

Pair Corralation between Merck and JD

Assuming the 90 days trading horizon Merck Company is expected to under-perform the JD. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 2.26 times less risky than JD. The stock trades about -0.11 of its potential returns per unit of risk. The JD Inc is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,690  in JD Inc on September 15, 2024 and sell it today you would earn a total of  850.00  from holding JD Inc or generate 31.6% return on investment over 90 days.

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

Merck Company  vs.  JD Inc

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.

JD Inc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in JD Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, JD demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and JD

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

The idea behind Merck Company and JD Inc 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.