Correlation Between Merck and NIKE
Can any of the company-specific risk be diversified away by investing in both Merck and NIKE 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 NIKE into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and NIKE Inc, you can compare the effects of market volatilities on Merck and NIKE 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 NIKE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and NIKE.
Diversification Opportunities for Merck and NIKE
Almost no diversification
The 3 months correlation between Merck and NIKE is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and NIKE Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NIKE 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 NIKE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NIKE Inc has no effect on the direction of Merck i.e., Merck and NIKE go up and down completely randomly.
Pair Corralation between Merck and NIKE
Assuming the 90 days trading horizon Merck Company is expected to under-perform the NIKE. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.25 times less risky than NIKE. The stock trades about -0.14 of its potential returns per unit of risk. The NIKE Inc is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest 813,000 in NIKE Inc on September 19, 2024 and sell it today you would lose (63,000) from holding NIKE Inc or give up 7.75% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. NIKE Inc
Performance |
| Timeline |
| Merck Company |
| NIKE Inc |
Merck and NIKE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and NIKE
The main advantage of trading using opposite Merck and NIKE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, NIKE 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 NIKE will offset losses from the drop in NIKE's long position.| Merck vs. Edesa Holding SA | Merck vs. Vista Energy, SAB | Merck vs. United States Steel | Merck vs. Central Puerto 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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