Correlation Between Merck and Oakmark International

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

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

Diversification Opportunities for Merck and Oakmark International

0.52

Correlation Coefficient

Merck  Oakmark International

Very weak diversification

The 3 months correlation between Merck and Oakmark is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Oakmark International Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oakmark International 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 Oakmark International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oakmark International has no effect on the direction of Merck i.e., Merck and Oakmark International go up and down completely randomly.

Pair Corralation between Merck and Oakmark International

Considering the 90-day investment horizon Merck Company is expected to generate 1.65 times more return on investment than Oakmark International. However, Merck is 1.65 times more volatile than Oakmark International Small. It trades about 0.06 of its potential returns per unit of risk. Oakmark International Small is currently generating about -0.1 per unit of risk. If you would invest  12,531  in Merck Company on January 25, 2024 and sell it today you would earn a total of  169.00  from holding Merck Company or generate 1.35% return on investment over 90 days.

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

Merck Company  vs.  Oakmark International Small

Merck Company

Risk-Adjusted Performance

7 of 100

OK

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 abnormal basic indicators, Merck may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Oakmark International

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Oakmark International Small are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Oakmark International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Merck and Oakmark International

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

The idea behind Merck Company and Oakmark International Small 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 the Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.