Correlation Between Merck and WisdomTree India

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

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

Diversification Opportunities for Merck and WisdomTree India

0.64

Correlation Coefficient

Merck  WisdomTree India

Poor diversification

The 3 months correlation between Merck and WisdomTree is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and WisdomTree India Earnings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree India Earnings 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 WisdomTree India. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree India Earnings has no effect on the direction of Merck i.e., Merck and WisdomTree India go up and down completely randomly.

Pair Corralation between Merck and WisdomTree India

Considering the 90-day investment horizon Merck is expected to generate 2.59 times less return on investment than WisdomTree India. In addition to that, Merck is 2.18 times more volatile than WisdomTree India Earnings. It trades about 0.06 of its total potential returns per unit of risk. WisdomTree India Earnings is currently generating about 0.34 per unit of volatility. If you would invest  4,272  in WisdomTree India Earnings on January 25, 2024 and sell it today you would earn a total of  190.00  from holding WisdomTree India Earnings or generate 4.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

Merck Company  vs.  WisdomTree India Earnings

Merck Company

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal basic indicators, Merck may actually be approaching a critical reversion point that can send shares even higher in May 2024.

WisdomTree India Earnings

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree India Earnings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, WisdomTree India may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Merck and WisdomTree India

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

The idea behind Merck Company and WisdomTree India Earnings 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.