Correlation Between Merck and Amazon
Can any of the company-specific risk be diversified away by investing in both Merck and Amazon 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 Amazon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Amazon Inc, you can compare the effects of market volatilities on Merck and Amazon 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 Amazon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Amazon.
Diversification Opportunities for Merck and Amazon
Very good diversification
The 3 months correlation between Merck and Amazon is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc 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 Company are associated (or correlated) with Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of Merck i.e., Merck and Amazon go up and down completely randomly.
Pair Corralation between Merck and Amazon
Assuming the 90 days trading horizon Merck Company is expected to under-perform the Amazon. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.4 times less risky than Amazon. The stock trades about -0.14 of its potential returns per unit of risk. The Amazon Inc is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 157,000 in Amazon Inc on September 19, 2024 and sell it today you would earn a total of 27,500 from holding Amazon Inc or generate 17.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 97.62% |
| Values | Daily Returns |
Merck Company vs. Amazon Inc
Performance |
| Timeline |
| Merck Company |
| Amazon Inc |
Merck and Amazon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Amazon
The main advantage of trading using opposite Merck and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Amazon 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 Amazon will offset losses from the drop in Amazon's long position.| Merck vs. Edesa Holding SA | Merck vs. Vista Energy, SAB | Merck vs. United States Steel | Merck vs. Central Puerto SA |
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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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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