Correlation Between Merck and Morningstar Aggressive

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

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

Diversification Opportunities for Merck and Morningstar Aggressive

-0.63

Correlation Coefficient

Merck  Morningstar Aggressive

Excellent diversification

The 3 months correlation between Merck and Morningstar is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Morningstar Aggressive Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morningstar Aggressive 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 Morningstar Aggressive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Morningstar Aggressive has no effect on the direction of Merck i.e., Merck and Morningstar Aggressive go up and down completely randomly.

Pair Corralation between Merck and Morningstar Aggressive

Considering the 90-day investment horizon Merck Company is expected to under-perform the Morningstar Aggressive. In addition to that, Merck is 1.86 times more volatile than Morningstar Aggressive Growth. It trades about -0.15 of its total potential returns per unit of risk. Morningstar Aggressive Growth is currently generating about 0.14 per unit of volatility. If you would invest  1,537  in Morningstar Aggressive Growth on August 31, 2024 and sell it today you would earn a total of  85.00  from holding Morningstar Aggressive Growth or generate 5.53% return on investment over 90 days.

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

Merck Company  vs.  Morningstar Aggressive Growth

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 abnormal performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Morningstar Aggressive

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Morningstar Aggressive Growth are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Morningstar Aggressive is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Merck and Morningstar Aggressive

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

The idea behind Merck Company and Morningstar Aggressive Growth 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.

Check out your portfolio center.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.