Correlation Between Agilent Technologies and Merck

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

Diversification Opportunities for Agilent Technologies and Merck

0.88
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Agilent and Merck is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Agilent Technologies and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Agilent Technologies 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 Agilent Technologies 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 Agilent Technologies i.e., Agilent Technologies and Merck go up and down completely randomly.

Pair Corralation between Agilent Technologies and Merck

Taking into account the 90-day investment horizon Agilent Technologies is expected to generate 2.04 times more return on investment than Merck. However, Agilent Technologies is 2.04 times more volatile than Merck Company. It trades about 0.2 of its potential returns per unit of risk. Merck Company is currently generating about 0.31 per unit of risk. If you would invest  13,700  in Agilent Technologies on September 10, 2022 and sell it today you would earn a total of  1,595  from holding Agilent Technologies or generate 11.64% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Agilent Technologies  vs.  Merck Company

 Performance (%) 
       Timeline  
Agilent Technologies 
Agilent Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Agilent Technologies are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, Agilent Technologies sustained solid returns over the last few months and may actually be approaching a breakup point.

Agilent Price Channel

Merck Company 
Merck Performance
22 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Merck demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Merck Price Channel

Agilent Technologies and Merck Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Agilent Technologies and Merck

The main advantage of trading using opposite Agilent Technologies and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Agilent Technologies 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.
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The idea behind Agilent Technologies 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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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.

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