Correlation Between Merck and JPMorgan USD

Can any of the company-specific risk be diversified away by investing in both Merck and JPMorgan USD 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 USD 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 USD Emerging, you can compare the effects of market volatilities on Merck and JPMorgan USD 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 USD. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and JPMorgan USD.

Diversification Opportunities for Merck and JPMorgan USD

0.22

Correlation Coefficient

Merck  JPMorgan USD

Modest diversification

The 3 months correlation between Merck and JPMorgan is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and JPMorgan USD Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JPMorgan USD Emerging 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 USD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JPMorgan USD Emerging has no effect on the direction of Merck i.e., Merck and JPMorgan USD go up and down completely randomly.

Pair Corralation between Merck and JPMorgan USD

Considering the 90-day investment horizon Merck Company is expected to generate 2.62 times more return on investment than JPMorgan USD. However, Merck is 2.62 times more volatile than JPMorgan USD Emerging. It trades about 0.06 of its potential returns per unit of risk. JPMorgan USD Emerging is currently generating about -0.24 per unit of risk. If you would invest  12,531  in Merck Company on January 23, 2024 and sell it today you would earn a total of  163.00  from holding Merck Company or generate 1.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Merck Company  vs.  JPMorgan USD Emerging

Merck Company

Risk-Adjusted Performance

6 of 100

Modest

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.

JPMorgan USD Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JPMorgan USD Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, JPMorgan USD is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Merck and JPMorgan USD

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

The idea behind Merck Company and JPMorgan USD Emerging 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.