Correlation Between Merck and Nasdaq-100 Index

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Can any of the company-specific risk be diversified away by investing in both Merck and Nasdaq-100 Index 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 Nasdaq-100 Index into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Nasdaq 100 Index Fund, you can compare the effects of market volatilities on Merck and Nasdaq-100 Index 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 Nasdaq-100 Index. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Nasdaq-100 Index.

Diversification Opportunities for Merck and Nasdaq-100 Index

0.27
  Correlation Coefficient

Modest diversification

The 1 month correlation between Merck and NASDAQ-100 is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and NASDAQ-100 INDEX FUND in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq-100 Index Fund 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 Nasdaq-100 Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq-100 Index Fund has no effect on the direction of Merck i.e., Merck and Nasdaq-100 Index go up and down completely randomly.

Pair Corralation between Merck and Nasdaq-100 Index

Considering the 90-day investment horizon Merck Company is expected to generate 1.43 times more return on investment than Nasdaq-100 Index. However, Merck is 1.43 times more volatile than Nasdaq 100 Index Fund. It trades about 0.1 of its potential returns per unit of risk. Nasdaq 100 Index Fund is currently generating about 0.09 per unit of risk. If you would invest  12,822  in Merck Company on December 29, 2023 and sell it today you would earn a total of  353.00  from holding Merck Company or generate 2.75% return on investment over 90 days.
Time Period1 Month [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy95.65%
ValuesDaily Returns

Merck Company  vs.  NASDAQ-100 INDEX FUND

 Performance 
       Timeline  
Merck Company 

Risk-Adjusted Performance

7 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Merck may actually be approaching a critical reversion point that can send shares even higher in April 2024.
Nasdaq-100 Index Fund 

Risk-Adjusted Performance

6 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq 100 Index Fund are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward-looking signals, Nasdaq-100 Index is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Merck and Nasdaq-100 Index Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merck and Nasdaq-100 Index

The main advantage of trading using opposite Merck and Nasdaq-100 Index positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Nasdaq-100 Index 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 Nasdaq-100 Index will offset losses from the drop in Nasdaq-100 Index's long position.
The idea behind Merck Company and Nasdaq 100 Index Fund 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.

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