Correlation Between Merck and SPDR Russell

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

By analyzing existing cross correlation between Merck Company and SPDR Russell 1000, you can compare the effects of market volatilities on Merck and SPDR Russell 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 SPDR Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and SPDR Russell.

Diversification Opportunities for Merck and SPDR Russell

0.47

Correlation Coefficient

Merck  SPDR Russell

Very weak diversification

The 3 months correlation between Merck and SPDR is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and SPDR Russell 1000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Russell 1000 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 SPDR Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Russell 1000 has no effect on the direction of Merck i.e., Merck and SPDR Russell go up and down completely randomly.

Pair Corralation between Merck and SPDR Russell

Considering the 90-day investment horizon Merck Company is expected to generate 1.56 times more return on investment than SPDR Russell. However, Merck is 1.56 times more volatile than SPDR Russell 1000. It trades about 0.05 of its potential returns per unit of risk. SPDR Russell 1000 is currently generating about -0.19 per unit of risk. If you would invest  12,552  in Merck Company on January 26, 2024 and sell it today you would earn a total of  148.00  from holding Merck Company or generate 1.18% 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.  SPDR Russell 1000

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.

SPDR Russell 1000

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Russell 1000 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, SPDR Russell is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Merck and SPDR Russell

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

The idea behind Merck Company and SPDR Russell 1000 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.