Correlation Between Merck and Insight Enterprises

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

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

Diversification Opportunities for Merck and Insight Enterprises

-0.2

Correlation Coefficient

Merck  Insight Enterprises

Good diversification

The 3 months correlation between Merck and Insight is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Insight Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insight Enterprises 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 Insight Enterprises. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Insight Enterprises has no effect on the direction of Merck i.e., Merck and Insight Enterprises go up and down completely randomly.

Pair Corralation between Merck and Insight Enterprises

Considering the 90-day investment horizon Merck is expected to generate 3.39 times less return on investment than Insight Enterprises. But when comparing it to its historical volatility, Merck Company is 1.22 times less risky than Insight Enterprises. It trades about 0.05 of its potential returns per unit of risk. Insight Enterprises is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  12,163  in Insight Enterprises on January 26, 2024 and sell it today you would earn a total of  6,273  from holding Insight Enterprises or generate 51.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Merck Company  vs.  Insight Enterprises

Merck Company

Risk-Adjusted Performance

6 of 100

OK

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.

Insight Enterprises

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Insight Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward indicators, Insight Enterprises is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Merck and Insight Enterprises

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

The idea behind Merck Company and Insight Enterprises 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .