Correlation Between Merck and Alcoa Corp
Can any of the company-specific risk be diversified away by investing in both Merck and Alcoa Corp 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 Alcoa Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Alcoa Corp, you can compare the effects of market volatilities on Merck and Alcoa Corp 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 Alcoa Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Alcoa Corp.
Diversification Opportunities for Merck and Alcoa Corp
0.36 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Merck and Alcoa is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp 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 Alcoa Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alcoa Corp has no effect on the direction of Merck i.e., Merck and Alcoa Corp go up and down completely randomly.
Pair Corralation between Merck and Alcoa Corp
Considering the 90-day investment horizon Merck Company is expected to under-perform the Alcoa Corp. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.15 times less risky than Alcoa Corp. The stock trades about -0.23 of its potential returns per unit of risk. The Alcoa Corp is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest 3,861 in Alcoa Corp on November 22, 2024 and sell it today you would lose (243.00) from holding Alcoa Corp or give up 6.29% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Alcoa Corp
Performance |
| Timeline |
| Merck Company |
| Alcoa Corp |
Merck and Alcoa Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Alcoa Corp
The main advantage of trading using opposite Merck and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Alcoa Corp 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 Alcoa Corp will offset losses from the drop in Alcoa Corp's long position.The idea behind Merck Company and Alcoa Corp pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Alcoa Corp vs. Constellium Nv | Alcoa Corp vs. China Hongqiao Group | Alcoa Corp vs. Kaiser Aluminum | Alcoa Corp vs. Norsk Hydro ASA |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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