Correlation Between Merck and ATT

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

Diversification Opportunities for Merck and ATT

0.67
  Correlation Coefficient

Poor diversification

The 3 months correlation between Merck and ATT is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and ATT Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ATT Inc 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 ATT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ATT Inc has no effect on the direction of Merck i.e., Merck and ATT go up and down completely randomly.

Pair Corralation between Merck and ATT

Considering the 90-day investment horizon Merck Company is expected to under-perform the ATT. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.49 times less risky than ATT. The stock trades about -0.27 of its potential returns per unit of risk. The ATT Inc is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,691  in ATT Inc on December 19, 2023 and sell it today you would earn a total of  39.00  from holding ATT Inc or generate 2.31% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Merck Company  vs.  ATT Inc

 Performance 
       Timeline  
Merck Company 

Risk-Adjusted Performance

17 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Merck disclosed solid returns over the last few months and may actually be approaching a breakup point.
ATT Inc 

Risk-Adjusted Performance

5 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in ATT Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, ATT may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Merck and ATT Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merck and ATT

The main advantage of trading using opposite Merck and ATT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, ATT 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 ATT will offset losses from the drop in ATT's long position.
The idea behind Merck Company and ATT Inc 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..

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