Correlation Between Merck and Celtic Plc

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

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

Diversification Opportunities for Merck and Celtic Plc

0.77

Correlation Coefficient

Merck  Celtic Plc

Poor diversification

The 3 months correlation between Merck and Celtic is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Celtic plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Celtic plc 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 Celtic Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Celtic plc has no effect on the direction of Merck i.e., Merck and Celtic Plc go up and down completely randomly.

Pair Corralation between Merck and Celtic Plc

Considering the 90-day investment horizon Merck Company is expected to under-perform the Celtic Plc. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 2.55 times less risky than Celtic Plc. The stock trades about -0.05 of its potential returns per unit of risk. The Celtic plc is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  195.00  in Celtic plc on August 31, 2024 and sell it today you would earn a total of  4.00  from holding Celtic plc or generate 2.05% return on investment over 90 days.

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

Merck Company  vs.  Celtic plc

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.

Celtic plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Celtic plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Merck and Celtic Plc

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

The idea behind Merck Company and Celtic plc 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.