Correlation Between Merck and FAM

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

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

Diversification Opportunities for Merck and FAM

-0.84

Correlation Coefficient

Merck  FAM

Pay attention - limited upside

The 3 months correlation between Merck and FAM is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and FAM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FAM 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 FAM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FAM has no effect on the direction of Merck i.e., Merck and FAM go up and down completely randomly.

Pair Corralation between Merck and FAM

If you would invest  674.00  in FAM on September 1, 2024 and sell it today you would earn a total of  0.00  from holding FAM or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	4.76%
Values	Daily Returns

Merck Company  vs.  FAM

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.

FAM

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days FAM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very uncertain basic indicators, FAM displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and FAM

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

The idea behind Merck Company and FAM 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..