Correlation Between Merck and Teradata Corp

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Can any of the company-specific risk be diversified away by investing in both Merck and Teradata Corp 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 Teradata Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Teradata Corp, you can compare the effects of market volatilities on Merck and Teradata Corp 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 Teradata Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Teradata Corp.

Diversification Opportunities for Merck and Teradata Corp

-0.36
  Correlation Coefficient

Very good diversification

The 3 months correlation between Merck and Teradata is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Teradata Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teradata Corp 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 Teradata Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teradata Corp has no effect on the direction of Merck i.e., Merck and Teradata Corp go up and down completely randomly.

Pair Corralation between Merck and Teradata Corp

Considering the 90-day investment horizon Merck is expected to generate 1.94 times less return on investment than Teradata Corp. In addition to that, Merck is 1.1 times more volatile than Teradata Corp. It trades about 0.1 of its total potential returns per unit of risk. Teradata Corp is currently generating about 0.21 per unit of volatility. If you would invest  3,727  in Teradata Corp on December 29, 2023 and sell it today you would earn a total of  210.00  from holding Teradata Corp or generate 5.63% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Merck Company  vs.  Teradata Corp

 Performance 
       Timeline  
Merck Company 

Risk-Adjusted Performance

21 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Merck disclosed solid returns over the last few months and may actually be approaching a breakup point.
Teradata Corp 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Teradata Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Merck and Teradata Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merck and Teradata Corp

The main advantage of trading using opposite Merck and Teradata Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Teradata Corp 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 Teradata Corp will offset losses from the drop in Teradata Corp's long position.
The idea behind Merck Company and Teradata Corp 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.
Check out your portfolio center.
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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.

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