Correlation Between Merck and Ford

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

Diversification Opportunities for Merck and Ford

0.09
  Correlation Coefficient

Significant diversification

The 3 months correlation between Merck and Ford is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Ford Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ford Motor 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 Ford. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ford Motor has no effect on the direction of Merck i.e., Merck and Ford go up and down completely randomly.

Pair Corralation between Merck and Ford

Considering the 90-day investment horizon Merck is expected to generate 1.46 times less return on investment than Ford. But when comparing it to its historical volatility, Merck Company is 2.07 times less risky than Ford. It trades about 0.07 of its potential returns per unit of risk. Ford Motor is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  867.00  in Ford Motor on September 1, 2022 and sell it today you would earn a total of  490.00  from holding Ford Motor or generate 56.52% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Merck Company  vs.  Ford Motor

 Performance (%) 
       Timeline  
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 uncertain basic indicators, Merck demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Merck Price Channel

Ford Motor 
Ford Performance
0 of 100
Over the last 90 days Ford Motor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Ford is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Ford Price Channel

Merck and Ford Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merck and Ford

The main advantage of trading using opposite Merck and Ford positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Ford 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 Ford will offset losses from the drop in Ford's long position.
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The idea behind Merck Company and Ford Motor 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.

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