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

  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between Merck and NASDAQ-100 is -0.76. 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 0.85 times more return on investment than NASDAQ-100 INDEX. However, Merck Company is 1.18 times less risky than NASDAQ-100 INDEX. It trades about 0.07 of its potential returns per unit of risk. NASDAQ-100 INDEX FUND is currently generating about 0.0 per unit of risk. If you would invest  6,882  in Merck Company on December 24, 2022 and sell it today you would earn a total of  3,541  from holding Merck Company or generate 51.45% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
ValuesDaily Returns

Merck Company  vs.  NASDAQ-100 INDEX FUND

 Performance (%) 
Merck Company 

Merck Performance

0 of 100

Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

NASDAQ-100 Performance

14 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in NASDAQ-100 INDEX FUND are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking signals, NASDAQ-100 INDEX showed solid returns over the last few months and may actually be approaching a breakup point.

Merck and NASDAQ-100 INDEX Volatility Contrast

   Predicted Return Density   

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.
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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.
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.

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