Correlation Between Merck and Davis New

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

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

Diversification Opportunities for Merck and Davis New

-0.79

Correlation Coefficient

Merck  Davis New

Pay attention - limited upside

The 3 months correlation between Merck and Davis is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Davis New York in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis New York 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 Davis New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davis New York has no effect on the direction of Merck i.e., Merck and Davis New go up and down completely randomly.

Pair Corralation between Merck and Davis New

Considering the 90-day investment horizon Merck Company is expected to under-perform the Davis New. In addition to that, Merck is 1.26 times more volatile than Davis New York. It trades about 0.0 of its total potential returns per unit of risk. Davis New York is currently generating about 0.05 per unit of volatility. If you would invest  2,595  in Davis New York on September 12, 2024 and sell it today you would earn a total of  430.00  from holding Davis New York or generate 16.57% 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.  Davis New York

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 weak 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.

Davis New York

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Davis New York are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Davis New may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Merck and Davis New

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

The idea behind Merck Company and Davis New York 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.