Correlation Between Merck and College Retirement

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

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

Diversification Opportunities for Merck and College Retirement

-0.81

Correlation Coefficient

Merck  College Retirement

Pay attention - limited upside

The 3 months correlation between Merck and College is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and College Retirement Equities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on College Retirement 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 College Retirement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of College Retirement has no effect on the direction of Merck i.e., Merck and College Retirement go up and down completely randomly.

Pair Corralation between Merck and College Retirement

Considering the 90-day investment horizon Merck Company is expected to under-perform the College Retirement. In addition to that, Merck is 1.19 times more volatile than College Retirement Equities. It trades about -0.19 of its total potential returns per unit of risk. College Retirement Equities is currently generating about 0.27 per unit of volatility. If you would invest  45,484  in College Retirement Equities on September 6, 2024 and sell it today you would earn a total of  8,234  from holding College Retirement Equities or generate 18.1% 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.  College Retirement Equities

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 weak 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.

College Retirement

Risk-Adjusted Performance

21 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in College Retirement Equities are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, College Retirement showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and College Retirement

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

The idea behind Merck Company and College Retirement Equities 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.