Correlation Between Motorola Solutions and Merck

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

By analyzing existing cross correlation between Motorola Solutions and Merck Company, you can compare the effects of market volatilities on Motorola Solutions and Merck 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 Motorola Solutions with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Motorola Solutions and Merck.

Diversification Opportunities for Motorola Solutions and Merck

-0.81

Correlation Coefficient

Motorola Solutions  Merck

Pay attention - limited upside

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

Pair Corralation between Motorola Solutions and Merck

Considering the 90-day investment horizon Motorola Solutions is expected to generate 1.05 times more return on investment than Merck. However, Motorola Solutions is 1.05 times more volatile than Merck Company. It trades about 0.11 of its potential returns per unit of risk. Merck Company is currently generating about -0.16 per unit of risk. If you would invest  43,882  in Motorola Solutions on September 12, 2024 and sell it today you would earn a total of  3,820  from holding Motorola Solutions or generate 8.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Motorola Solutions  vs.  Merck Company

Motorola Solutions

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Motorola Solutions are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Motorola Solutions may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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.

Pair Trading with Motorola Solutions and Merck

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

The idea behind Motorola Solutions and Merck Company 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.