Correlation Between Merck and Waste Management
Can any of the company-specific risk be diversified away by investing in both Merck and Waste Management 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 Waste Management into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Co and Waste Management, you can compare the effects of market volatilities on Merck and Waste Management 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 Waste Management. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Waste Management.
Diversification Opportunities for Merck and Waste Management
-0.58 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Merck and Waste is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Merck Co and Waste Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waste Management 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 Waste Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waste Management has no effect on the direction of Merck i.e., Merck and Waste Management go up and down completely randomly.
Pair Corralation between Merck and Waste Management
Assuming the 90 days trading horizon Merck is expected to generate 3.95 times less return on investment than Waste Management. In addition to that, Merck is 1.05 times more volatile than Waste Management. It trades about 0.02 of its total potential returns per unit of risk. Waste Management is currently generating about 0.07 per unit of volatility. If you would invest 43,027 in Waste Management on September 3, 2024 and sell it today you would earn a total of 25,007 from holding Waste Management or generate 58.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 96.0% |
| Values | Daily Returns |
Merck Co vs. Waste Management
Performance |
| Timeline |
| Merck |
| Waste Management |
Merck and Waste Management Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Waste Management
The main advantage of trading using opposite Merck and Waste Management positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Waste Management 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 Waste Management will offset losses from the drop in Waste Management's long position.| Merck vs. Ross Stores | Merck vs. Hospital Mater Dei | Merck vs. UnitedHealth Group Incorporated | Merck vs. Delta Air Lines |
| Waste Management vs. Metalrgica Riosulense SA | Waste Management vs. Apartment Investment and | Waste Management vs. New Oriental Education | Waste Management vs. CM Hospitalar 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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