Correlation Between Merck and KKR Co

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

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

Diversification Opportunities for Merck and KKR Co

0.01

Correlation Coefficient

Merck  KKR Co

Significant diversification

The 3 months correlation between Merck and KKR is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and KKR Co LP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KKR Co LP 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 KKR Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KKR Co LP has no effect on the direction of Merck i.e., Merck and KKR Co go up and down completely randomly.

Pair Corralation between Merck and KKR Co

Considering the 90-day investment horizon Merck Company is expected to generate 0.46 times more return on investment than KKR Co. However, Merck Company is 2.19 times less risky than KKR Co. It trades about 0.15 of its potential returns per unit of risk. KKR Co LP is currently generating about -0.04 per unit of risk. If you would invest  12,656  in Merck Company on February 8, 2024 and sell it today you would earn a total of  382.00  from holding Merck Company or generate 3.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

Merck Company  vs.  KKR Co LP

Merck Company

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 4 (%) 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.

KKR Co LP

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in KKR Co LP are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward-looking signals, KKR Co 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 KKR Co

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

The idea behind Merck Company and KKR Co LP 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.