Correlation Between Merck and 437076CQ3

Can any of the company-specific risk be diversified away by investing in both Merck and 437076CQ3 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 437076CQ3 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Merck Company and HD 3625 15 APR 52, you can compare the effects of market volatilities on Merck and 437076CQ3 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 437076CQ3. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and 437076CQ3.

Diversification Opportunities for Merck and 437076CQ3

0.83

Correlation Coefficient

Merck  437076CQ3

Very poor diversification

The 3 months correlation between Merck and 437076CQ3 is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and HD 3625 15 APR 52 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HD 3625 15 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 437076CQ3. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HD 3625 15 has no effect on the direction of Merck i.e., Merck and 437076CQ3 go up and down completely randomly.

Pair Corralation between Merck and 437076CQ3

Considering the 90-day investment horizon Merck Company is expected to under-perform the 437076CQ3. In addition to that, Merck is 1.59 times more volatile than HD 3625 15 APR 52. It trades about -0.18 of its total potential returns per unit of risk. HD 3625 15 APR 52 is currently generating about -0.1 per unit of volatility. If you would invest  8,088  in HD 3625 15 APR 52 on September 13, 2024 and sell it today you would lose (377.00) from holding HD 3625 15 APR 52 or give up 4.66% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	90.48%
Values	Daily Returns

Merck Company  vs.  HD 3625 15 APR 52

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 abnormal 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.

HD 3625 15

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HD 3625 15 APR 52 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 437076CQ3 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Merck and 437076CQ3

The main advantage of trading using opposite Merck and 437076CQ3 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, 437076CQ3 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 437076CQ3 will offset losses from the drop in 437076CQ3's long position.

The idea behind Merck Company and HD 3625 15 APR 52 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.