Correlation Between Merck and 053773BE6

Can any of the company-specific risk be diversified away by investing in both Merck and 053773BE6 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 053773BE6 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Merck Company and AVIS BUDGET CAR, you can compare the effects of market volatilities on Merck and 053773BE6 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 053773BE6. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and 053773BE6.

Diversification Opportunities for Merck and 053773BE6

-0.64

Correlation Coefficient

Merck  053773BE6

Excellent diversification

The 3 months correlation between Merck and 053773BE6 is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and AVIS BUDGET CAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AVIS BUDGET CAR 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 053773BE6. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AVIS BUDGET CAR has no effect on the direction of Merck i.e., Merck and 053773BE6 go up and down completely randomly.

Pair Corralation between Merck and 053773BE6

Considering the 90-day investment horizon Merck Company is expected to generate 0.89 times more return on investment than 053773BE6. However, Merck Company is 1.12 times less risky than 053773BE6. It trades about 0.02 of its potential returns per unit of risk. AVIS BUDGET CAR is currently generating about -0.15 per unit of risk. If you would invest  10,073  in Merck Company on September 12, 2024 and sell it today you would earn a total of  27.00  from holding Merck Company or generate 0.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	38.1%
Values	Daily Returns

Merck Company  vs.  AVIS BUDGET CAR

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.

AVIS BUDGET CAR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AVIS BUDGET CAR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 053773BE6 is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Merck and 053773BE6

The main advantage of trading using opposite Merck and 053773BE6 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, 053773BE6 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 053773BE6 will offset losses from the drop in 053773BE6's long position.

The idea behind Merck Company and AVIS BUDGET CAR 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.