Correlation Between Merck and Telekom Austria

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

By analyzing existing cross correlation between Merck Company and Telekom Austria AG, you can compare the effects of market volatilities on Merck and Telekom Austria 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 Telekom Austria. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Telekom Austria.

Diversification Opportunities for Merck and Telekom Austria

0.85

Correlation Coefficient

Merck  Telekom Austria

Very poor diversification

The 3 months correlation between Merck and Telekom is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Telekom Austria AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telekom Austria AG 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 Telekom Austria. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telekom Austria AG has no effect on the direction of Merck i.e., Merck and Telekom Austria go up and down completely randomly.

Pair Corralation between Merck and Telekom Austria

Assuming the 90 days trading horizon Merck Company is expected to generate 0.95 times more return on investment than Telekom Austria. However, Merck Company is 1.05 times less risky than Telekom Austria. It trades about -0.08 of its potential returns per unit of risk. Telekom Austria AG is currently generating about -0.09 per unit of risk. If you would invest  10,303  in Merck Company on September 12, 2024 and sell it today you would lose (643.00) from holding Merck Company or give up 6.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

Merck Company  vs.  Telekom Austria AG

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 fairly strong forward-looking signals, Merck is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Telekom Austria AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telekom Austria AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's basic indicators 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 Merck and Telekom Austria

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

The idea behind Merck Company and Telekom Austria AG 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.