Correlation Between Merck and JPMorgan Chase

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

Diversification Opportunities for Merck and JPMorgan Chase

0.89
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Merck and JPMorgan is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and JPMorgan Chase Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JPMorgan Chase 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 JPMorgan Chase. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JPMorgan Chase has no effect on the direction of Merck i.e., Merck and JPMorgan Chase go up and down completely randomly.

Pair Corralation between Merck and JPMorgan Chase

Considering the 90-day investment horizon Merck Company is expected to generate 0.84 times more return on investment than JPMorgan Chase. However, Merck Company is 1.2 times less risky than JPMorgan Chase. It trades about 0.07 of its potential returns per unit of risk. JPMorgan Chase Co is currently generating about 0.02 per unit of risk. If you would invest  7,120  in Merck Company on September 10, 2022 and sell it today you would earn a total of  3,965  from holding Merck Company or generate 55.69% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Merck Company  vs.  JPMorgan Chase Co

 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 weak basic indicators, Merck demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Merck Price Channel

JPMorgan Chase 
JPMorgan Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in JPMorgan Chase Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, JPMorgan Chase may actually be approaching a critical reversion point that can send shares even higher in January 2023.

JPMorgan Price Channel

Merck and JPMorgan Chase Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merck and JPMorgan Chase

The main advantage of trading using opposite Merck and JPMorgan Chase positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, JPMorgan Chase 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 JPMorgan Chase will offset losses from the drop in JPMorgan Chase's long position.
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The idea behind Merck Company and JPMorgan Chase Co 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..

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