Correlation Between Merck and Walt Disney
Can any of the company-specific risk be diversified away by investing in both Merck and Walt Disney 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 Walt Disney into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Walt Disney, you can compare the effects of market volatilities on Merck and Walt Disney 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 Walt Disney. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Walt Disney.
Diversification Opportunities for Merck and Walt Disney
-0.32 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Merck and Walt is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Walt Disney in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walt Disney 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 Walt Disney. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walt Disney has no effect on the direction of Merck i.e., Merck and Walt Disney go up and down completely randomly.
Pair Corralation between Merck and Walt Disney
Assuming the 90 days trading horizon Merck Company is expected to under-perform the Walt Disney. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.28 times less risky than Walt Disney. The stock trades about -0.22 of its potential returns per unit of risk. The Walt Disney is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest 929,000 in Walt Disney on August 28, 2024 and sell it today you would earn a total of 136,000 from holding Walt Disney or generate 14.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Walt Disney
Performance |
| Timeline |
| Merck Company |
| Walt Disney |
Merck and Walt Disney Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Walt Disney
The main advantage of trading using opposite Merck and Walt Disney positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Walt Disney 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 Walt Disney will offset losses from the drop in Walt Disney's long position.| Merck vs. Agrometal SAI | Merck vs. Compania de Transporte | Merck vs. Telecom Argentina | Merck vs. Harmony Gold Mining |
| Walt Disney vs. Edesa Holding SA | Walt Disney vs. American Express Co | Walt Disney vs. United States Steel | Walt Disney vs. Capex 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.
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