Correlation Between Apple and Merck
Can any of the company-specific risk be diversified away by investing in both Apple 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 Apple and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Apple Inc DRC and Merck Company, you can compare the effects of market volatilities on Apple 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 Apple with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Apple and Merck.
Diversification Opportunities for Apple and Merck
Modest diversification
The 3 months correlation between Apple and Merck is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc DRC and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Apple 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 Apple Inc DRC 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 Apple i.e., Apple and Merck go up and down completely randomly.
Pair Corralation between Apple and Merck
Assuming the 90 days trading horizon Apple Inc DRC is expected to generate 1.14 times more return on investment than Merck. However, Apple is 1.14 times more volatile than Merck Company. It trades about -0.01 of its potential returns per unit of risk. Merck Company is currently generating about -0.17 per unit of risk. If you would invest 1,450,000 in Apple Inc DRC on November 2, 2024 and sell it today you would lose (35,000) from holding Apple Inc DRC or give up 2.41% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.04% |
| Values | Daily Returns |
Apple Inc DRC vs. Merck Company
Performance |
| Timeline |
| Apple Inc DRC |
| Merck Company |
Apple and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Apple and Merck
The main advantage of trading using opposite Apple and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Apple 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.| Apple vs. Harmony Gold Mining | Apple vs. Compania de Transporte | Apple vs. Agrometal SAI | Apple vs. Telecom Argentina |
| Merck vs. Telecom Argentina | Merck vs. United States Steel | Merck vs. Agrometal SAI | Merck vs. Harmony Gold Mining |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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