Correlation Between Merck and City National

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

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

Diversification Opportunities for Merck and City National

-0.8

Correlation Coefficient

Merck  City National

Pay attention - limited upside

The 3 months correlation between Merck and City is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and City National Rochdale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City National Rochdale 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 City National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of City National Rochdale has no effect on the direction of Merck i.e., Merck and City National go up and down completely randomly.

Pair Corralation between Merck and City National

Considering the 90-day investment horizon Merck Company is expected to under-perform the City National. In addition to that, Merck is 9.45 times more volatile than City National Rochdale. It trades about -0.2 of its total potential returns per unit of risk. City National Rochdale is currently generating about 0.13 per unit of volatility. If you would invest  99.00  in City National Rochdale on September 14, 2024 and sell it today you would earn a total of  1.00  from holding City National Rochdale or generate 1.01% return on investment over 90 days.

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

Merck Company  vs.  City National Rochdale

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 uncertain 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.

City National Rochdale

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in City National Rochdale are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, City National 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 City National

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

The idea behind Merck Company and City National Rochdale 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.