Correlation Between Merck and 156700BD7

Can any of the company-specific risk be diversified away by investing in both Merck and 156700BD7 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 156700BD7 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Merck Company and US156700BD72, you can compare the effects of market volatilities on Merck and 156700BD7 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 156700BD7. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and 156700BD7.

Diversification Opportunities for Merck and 156700BD7

-0.47

Correlation Coefficient

Merck  156700BD7

Very good diversification

The 3 months correlation between Merck and 156700BD7 is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and US156700BD72 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US156700BD72 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 156700BD7. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US156700BD72 has no effect on the direction of Merck i.e., Merck and 156700BD7 go up and down completely randomly.

Pair Corralation between Merck and 156700BD7

Considering the 90-day investment horizon Merck Company is expected to generate 0.13 times more return on investment than 156700BD7. However, Merck Company is 7.41 times less risky than 156700BD7. It trades about -0.14 of its potential returns per unit of risk. US156700BD72 is currently generating about -0.07 per unit of risk. If you would invest  11,042  in Merck Company on September 16, 2024 and sell it today you would lose (842.00) from holding Merck Company or give up 7.63% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	86.05%
Values	Daily Returns

Merck Company  vs.  US156700BD72

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.

US156700BD72

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days US156700BD72 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for US156700BD72 investors.

Pair Trading with Merck and 156700BD7

The main advantage of trading using opposite Merck and 156700BD7 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, 156700BD7 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 156700BD7 will offset losses from the drop in 156700BD7's long position.

The idea behind Merck Company and US156700BD72 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.