Correlation Between Merck and Procter Gamble
Can any of the company-specific risk be diversified away by investing in both Merck and Procter Gamble 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 Procter Gamble into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Procter Gamble DRC, you can compare the effects of market volatilities on Merck and Procter Gamble 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 Procter Gamble. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Procter Gamble.
Diversification Opportunities for Merck and Procter Gamble
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Merck and Procter is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Procter Gamble DRC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Procter Gamble DRC 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 Procter Gamble. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Procter Gamble DRC has no effect on the direction of Merck i.e., Merck and Procter Gamble go up and down completely randomly.
Pair Corralation between Merck and Procter Gamble
Assuming the 90 days trading horizon Merck Company is expected to under-perform the Procter Gamble. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.05 times less risky than Procter Gamble. The stock trades about -0.22 of its potential returns per unit of risk. The Procter Gamble DRC is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 1,305,000 in Procter Gamble DRC on August 27, 2024 and sell it today you would earn a total of 12,500 from holding Procter Gamble DRC or generate 0.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Procter Gamble DRC
Performance |
| Timeline |
| Merck Company |
| Procter Gamble DRC |
Merck and Procter Gamble Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Procter Gamble
The main advantage of trading using opposite Merck and Procter Gamble positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Procter Gamble 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 Procter Gamble will offset losses from the drop in Procter Gamble's long position.| Merck vs. Agrometal SAI | Merck vs. Compania de Transporte | Merck vs. Telecom Argentina | Merck vs. Harmony Gold Mining |
| Procter Gamble vs. Edesa Holding SA | Procter Gamble vs. American Express Co | Procter Gamble vs. United States Steel | Procter Gamble 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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