Correlation Between Merck and IShares Core

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

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

Diversification Opportunities for Merck and IShares Core

0.27

Correlation Coefficient

Merck  IShares Core

Modest diversification

The 3 months correlation between Merck and IShares is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and iShares Core SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Core SP 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 IShares Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Core SP has no effect on the direction of Merck i.e., Merck and IShares Core go up and down completely randomly.

Pair Corralation between Merck and IShares Core

Considering the 90-day investment horizon Merck Company is expected to generate 0.92 times more return on investment than IShares Core. However, Merck Company is 1.08 times less risky than IShares Core. It trades about 0.09 of its potential returns per unit of risk. iShares Core SP is currently generating about 0.01 per unit of risk. If you would invest  12,006  in Merck Company on January 26, 2024 and sell it today you would earn a total of  694.00  from holding Merck Company or generate 5.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Merck Company  vs.  iShares Core SP

Merck Company

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. 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.

iShares Core SP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Core SP has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward-looking indicators, IShares Core is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Merck and IShares Core

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

The idea behind Merck Company and iShares Core SP 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 Global Correlations module to find global opportunities by holding instruments from different markets.