Correlation Between Merck and PowerShares Global

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

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

Diversification Opportunities for Merck and PowerShares Global

-0.43

Correlation Coefficient

Merck  PowerShares Global

Very good diversification

The 3 months correlation between Merck and PowerShares is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and PowerShares Global Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PowerShares Global Funds 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 PowerShares Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PowerShares Global Funds has no effect on the direction of Merck i.e., Merck and PowerShares Global go up and down completely randomly.

Pair Corralation between Merck and PowerShares Global

Considering the 90-day investment horizon Merck Company is expected to under-perform the PowerShares Global. In addition to that, Merck is 1.07 times more volatile than PowerShares Global Funds. It trades about 0.0 of its total potential returns per unit of risk. PowerShares Global Funds is currently generating about 0.1 per unit of volatility. If you would invest  40,876  in PowerShares Global Funds on September 16, 2024 and sell it today you would earn a total of  6,543  from holding PowerShares Global Funds or generate 16.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	51.61%
Values	Daily Returns

Merck Company  vs.  PowerShares Global Funds

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.

PowerShares Global Funds

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PowerShares Global Funds has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, PowerShares Global is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Merck and PowerShares Global

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

The idea behind Merck Company and PowerShares Global Funds 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.