Correlation Between Merck and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Merck and Dow Jones 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 Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Dow Jones Industrial, you can compare the effects of market volatilities on Merck and Dow Jones 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 Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Dow Jones.
Diversification Opportunities for Merck and Dow Jones
Pay attention - limited upside
The 3 months correlation between Merck and Dow is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial 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 Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of Merck i.e., Merck and Dow Jones go up and down completely randomly.
Pair Corralation between Merck and Dow Jones
Considering the 90-day investment horizon Merck Company is expected to under-perform the Dow Jones. In addition to that, Merck is 1.27 times more volatile than Dow Jones Industrial. It trades about -0.18 of its total potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.22 per unit of volatility. If you would invest 4,238,757 in Dow Jones Industrial on August 27, 2024 and sell it today you would earn a total of 190,894 from holding Dow Jones Industrial or generate 4.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Dow Jones Industrial
Performance |
| Timeline |
Merck and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Merck Company
Pair trading matchups for Merck
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Merck and Dow Jones
The main advantage of trading using opposite Merck and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.| Merck vs. Capricor Therapeutics | Merck vs. Soleno Therapeutics | Merck vs. Bio Path Holdings | Merck vs. Moleculin Biotech |
| Dow Jones vs. Meiwu Technology Co | Dow Jones vs. 17 Education Technology | Dow Jones vs. 51Talk Online Education | Dow Jones vs. Afya |
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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