Correlation Between Merck and 126307AY3

Can any of the company-specific risk be diversified away by investing in both Merck and 126307AY3 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 126307AY3 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Merck Company and CSC Holdings 75, you can compare the effects of market volatilities on Merck and 126307AY3 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 126307AY3. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and 126307AY3.

Diversification Opportunities for Merck and 126307AY3

-0.35

Correlation Coefficient

Merck  126307AY3

Very good diversification

The 3 months correlation between Merck and 126307AY3 is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and CSC Holdings 75 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CSC Holdings 75 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 126307AY3. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CSC Holdings 75 has no effect on the direction of Merck i.e., Merck and 126307AY3 go up and down completely randomly.

Pair Corralation between Merck and 126307AY3

Considering the 90-day investment horizon Merck Company is expected to generate 0.41 times more return on investment than 126307AY3. However, Merck Company is 2.46 times less risky than 126307AY3. It trades about 0.01 of its potential returns per unit of risk. CSC Holdings 75 is currently generating about -0.2 per unit of risk. If you would invest  10,187  in Merck Company on September 5, 2024 and sell it today you would lose (2.00) from holding Merck Company or give up 0.02% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	72.73%
Values	Daily Returns

Merck Company  vs.  CSC Holdings 75

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.

CSC Holdings 75

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CSC Holdings 75 are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, 126307AY3 sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and 126307AY3

The main advantage of trading using opposite Merck and 126307AY3 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, 126307AY3 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 126307AY3 will offset losses from the drop in 126307AY3's long position.

The idea behind Merck Company and CSC Holdings 75 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.