Correlation Between Pacific Funds and Merck

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

By analyzing existing cross correlation between Pacific Funds Floating and Merck Company, you can compare the effects of market volatilities on Pacific Funds and Merck 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 Pacific Funds with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pacific Funds and Merck.

Diversification Opportunities for Pacific Funds and Merck

0.56

Correlation Coefficient

Pacific Funds  Merck

Very weak diversification

The 3 months correlation between Pacific and Merck is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Pacific Funds Floating and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Pacific Funds 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 Pacific Funds Floating are associated (or correlated) with Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Pacific Funds i.e., Pacific Funds and Merck go up and down completely randomly.

Pair Corralation between Pacific Funds and Merck

Assuming the 90 days horizon Pacific Funds is expected to generate 3.06 times less return on investment than Merck. But when comparing it to its historical volatility, Pacific Funds Floating is 7.32 times less risky than Merck. It trades about 0.22 of its potential returns per unit of risk. Merck Company is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  11,814  in Merck Company on January 19, 2024 and sell it today you would earn a total of  723.00  from holding Merck Company or generate 6.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Pacific Funds Floating  vs.  Merck Company

Pacific Funds Floating

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pacific Funds Floating are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Pacific Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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

Pair Trading with Pacific Funds and Merck

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

The idea behind Pacific Funds Floating and Merck Company 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.