Correlation Between Merck and Verizon Communications
Can any of the company-specific risk be diversified away by investing in both Merck and Verizon Communications 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 Verizon Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Co and Verizon Communications, you can compare the effects of market volatilities on Merck and Verizon Communications 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 Verizon Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Verizon Communications.
Diversification Opportunities for Merck and Verizon Communications
-0.04 | Correlation Coefficient |
Good diversification
The 3 months correlation between Merck and Verizon is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Merck Co and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications 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 Co are associated (or correlated) with Verizon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of Merck i.e., Merck and Verizon Communications go up and down completely randomly.
Pair Corralation between Merck and Verizon Communications
Assuming the 90 days trading horizon Merck is expected to generate 3.22 times less return on investment than Verizon Communications. But when comparing it to its historical volatility, Merck Co is 1.06 times less risky than Verizon Communications. It trades about 0.02 of its potential returns per unit of risk. Verizon Communications is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 3,060 in Verizon Communications on September 3, 2024 and sell it today you would earn a total of 1,359 from holding Verizon Communications or generate 44.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Co vs. Verizon Communications
Performance |
| Timeline |
| Merck |
| Verizon Communications |
Merck and Verizon Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Verizon Communications
The main advantage of trading using opposite Merck and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Verizon Communications 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 Verizon Communications will offset losses from the drop in Verizon Communications' long position.| Merck vs. Ross Stores | Merck vs. Hospital Mater Dei | Merck vs. UnitedHealth Group Incorporated | Merck vs. Delta Air Lines |
| Verizon Communications vs. T Mobile | Verizon Communications vs. Telefnica Brasil SA | Verizon Communications vs. TIM SA | Verizon Communications vs. Oi SA |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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