Correlation Between Merck and Concord Medical

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

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

Diversification Opportunities for Merck and Concord Medical

-0.46

Correlation Coefficient

Merck  Concord Medical

Very good diversification

The 3 months correlation between Merck and Concord is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Concord Medical Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Concord Medical Services 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 Concord Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Concord Medical Services has no effect on the direction of Merck i.e., Merck and Concord Medical go up and down completely randomly.

Pair Corralation between Merck and Concord Medical

Considering the 90-day investment horizon Merck Company is expected to generate 0.19 times more return on investment than Concord Medical. However, Merck Company is 5.34 times less risky than Concord Medical. It trades about 0.08 of its potential returns per unit of risk. Concord Medical Services is currently generating about 0.0 per unit of risk. If you would invest  7,976  in Merck Company on January 17, 2024 and sell it today you would earn a total of  4,643  from holding Merck Company or generate 58.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Merck Company  vs.  Concord Medical Services

Merck Company

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Merck may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Concord Medical Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Concord Medical Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in May 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Merck and Concord Medical

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

The idea behind Merck Company and Concord Medical Services 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.