Correlation Between Merck and Hartford Midcap

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

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

Diversification Opportunities for Merck and Hartford Midcap

-0.65

Correlation Coefficient

Merck  Hartford Midcap

Excellent diversification

The 3 months correlation between Merck and Hartford is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and The Hartford Midcap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hartford Midcap 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 Hartford Midcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hartford Midcap has no effect on the direction of Merck i.e., Merck and Hartford Midcap go up and down completely randomly.

Pair Corralation between Merck and Hartford Midcap

Considering the 90-day investment horizon Merck Company is expected to under-perform the Hartford Midcap. In addition to that, Merck is 1.11 times more volatile than The Hartford Midcap. It trades about -0.15 of its total potential returns per unit of risk. The Hartford Midcap is currently generating about -0.01 per unit of volatility. If you would invest  3,175  in The Hartford Midcap on September 13, 2024 and sell it today you would lose (31.00) from holding The Hartford Midcap or give up 0.98% of portfolio value over 90 days.

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

Merck Company  vs.  The Hartford Midcap

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 abnormal 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.

Hartford Midcap

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Hartford Midcap are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Hartford Midcap 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 Hartford Midcap

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

The idea behind Merck Company and The Hartford Midcap 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.