Correlation Between Walt Disney and Merck
Can any of the company-specific risk be diversified away by investing in both Walt Disney 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 Walt Disney and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Walt Disney and Merck Company, you can compare the effects of market volatilities on Walt Disney 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 Walt Disney with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Walt Disney and Merck.
Diversification Opportunities for Walt Disney and Merck
-0.38 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Walt and Merck is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Walt Disney 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 Walt Disney 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 Walt Disney i.e., Walt Disney and Merck go up and down completely randomly.
Pair Corralation between Walt Disney and Merck
Assuming the 90 days trading horizon Walt Disney is expected to generate 1.06 times more return on investment than Merck. However, Walt Disney is 1.06 times more volatile than Merck Company. It trades about 0.1 of its potential returns per unit of risk. Merck Company is currently generating about -0.17 per unit of risk. If you would invest 969,000 in Walt Disney on November 2, 2024 and sell it today you would earn a total of 153,500 from holding Walt Disney or generate 15.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.04% |
| Values | Daily Returns |
Walt Disney vs. Merck Company
Performance |
| Timeline |
| Walt Disney |
| Merck Company |
Walt Disney and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Walt Disney and Merck
The main advantage of trading using opposite Walt Disney and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walt Disney 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.| Walt Disney vs. United States Steel | Walt Disney vs. Agrometal SAI | Walt Disney vs. Transportadora de Gas | Walt Disney vs. Harmony Gold Mining |
| 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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