Correlation Between Citigroup and Merck

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

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

Diversification Opportunities for Citigroup and Merck

-0.22

Correlation Coefficient

Citigroup Merck

Very good diversification

The 3 months correlation between Citigroup and Merck is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Citigroup 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 Citigroup 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 Citigroup i.e., Citigroup and Merck go up and down completely randomly.

Pair Corralation between Citigroup and Merck

Taking into account the 90-day investment horizon Citigroup is expected to under-perform the Merck. In addition to that, Citigroup is 1.46 times more volatile than Merck Company. It trades about -0.18 of its total potential returns per unit of risk. Merck Company is currently generating about -0.04 per unit of volatility. If you would invest  10,784  in Merck Company on December 26, 2022 and sell it today you would lose (304.00)  from holding Merck Company or give up 2.82% of portfolio value over 90 days.

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

Citigroup  vs.  Merck Company

Citigroup

Citigroup Performance

0 of 100

Over the last 90 days Citigroup has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Citigroup is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Merck Company

Merck Performance

0 of 100

Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Merck is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Citigroup and Merck

The main advantage of trading using opposite Citigroup and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Citigroup 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 Citigroup 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 Bond Directory module to find actively traded corporate debentures issued by US companies.