Correlation Between Merck and Domo

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

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

Diversification Opportunities for Merck and Domo

0.25

Correlation Coefficient

Merck  Domo

Modest diversification

The 3 months correlation between Merck and Domo is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Domo Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Domo Inc 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 Domo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Domo Inc has no effect on the direction of Merck i.e., Merck and Domo go up and down completely randomly.

Pair Corralation between Merck and Domo

Considering the 90-day investment horizon Merck Company is expected to generate 0.3 times more return on investment than Domo. However, Merck Company is 3.37 times less risky than Domo. It trades about 0.03 of its potential returns per unit of risk. Domo Inc is currently generating about -0.02 per unit of risk. If you would invest  9,444  in Merck Company on July 7, 2024 and sell it today you would earn a total of  1,533  from holding Merck Company or generate 16.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Merck Company  vs.  Domo Inc

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 unsteady 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.

Domo Inc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Domo Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, Domo is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Merck and Domo

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

The idea behind Merck Company and Domo Inc 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.