Correlation Between Merck and Vanguard New

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

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

Diversification Opportunities for Merck and Vanguard New

0.06

Correlation Coefficient

Merck  Vanguard New

Significant diversification

The 3 months correlation between Merck and Vanguard is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Vanguard New Jersey in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard New Jersey 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 Vanguard New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard New Jersey has no effect on the direction of Merck i.e., Merck and Vanguard New go up and down completely randomly.

Pair Corralation between Merck and Vanguard New

Considering the 90-day investment horizon Merck Company is expected to generate 3.42 times more return on investment than Vanguard New. However, Merck is 3.42 times more volatile than Vanguard New Jersey. It trades about 0.09 of its potential returns per unit of risk. Vanguard New Jersey is currently generating about 0.03 per unit of risk. If you would invest  10,660  in Merck Company on January 20, 2024 and sell it today you would earn a total of  1,863  from holding Merck Company or generate 17.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.47%
Values	Daily Returns

Merck Company  vs.  Vanguard New Jersey

Merck Company

Risk-Adjusted Performance

6 of 100

Modest

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 newest stock price mess, may contribute to short-term losses for the institutional investors.

Vanguard New Jersey

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard New Jersey has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard New 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 Vanguard New

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

The idea behind Merck Company and Vanguard New Jersey 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 Global Correlations module to find global opportunities by holding instruments from different markets.