Correlation Between Merck and International Seaways

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

Diversification Opportunities for Merck and International Seaways

0.75
  Correlation Coefficient

Poor diversification

The 3 months correlation between Merck and International is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and International Seaways in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Seaways 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 International Seaways. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Seaways has no effect on the direction of Merck i.e., Merck and International Seaways go up and down completely randomly.

Pair Corralation between Merck and International Seaways

Considering the 90-day investment horizon Merck is expected to generate 2.72 times less return on investment than International Seaways. But when comparing it to its historical volatility, Merck Company is 2.17 times less risky than International Seaways. It trades about 0.08 of its potential returns per unit of risk. International Seaways is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,599  in International Seaways on December 29, 2023 and sell it today you would earn a total of  3,650  from holding International Seaways or generate 228.27% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Merck Company  vs.  International Seaways

 Performance 
       Timeline  
Merck Company 

Risk-Adjusted Performance

21 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Merck disclosed solid returns over the last few months and may actually be approaching a breakup point.
International Seaways 

Risk-Adjusted Performance

13 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in International Seaways are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, International Seaways showed solid returns over the last few months and may actually be approaching a breakup point.

Merck and International Seaways Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merck and International Seaways

The main advantage of trading using opposite Merck and International Seaways positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, International Seaways 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 International Seaways will offset losses from the drop in International Seaways' long position.
The idea behind Merck Company and International Seaways 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.

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