Correlation Between Merck and First American
Can any of the company-specific risk be diversified away by investing in both Merck and First American 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 First American into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and First American Funds, you can compare the effects of market volatilities on Merck and First American 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 First American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and First American.
Diversification Opportunities for Merck and First American
-0.77 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Merck and First is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and First American Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First American Funds 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 First American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First American Funds has no effect on the direction of Merck i.e., Merck and First American go up and down completely randomly.
Pair Corralation between Merck and First American
Considering the 90-day investment horizon Merck Company is expected to under-perform the First American. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 15.5 times less risky than First American. The stock trades about 0.0 of its potential returns per unit of risk. The First American Funds is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 378.00 in First American Funds on September 12, 2024 and sell it today you would lose (278.00) from holding First American Funds or give up 73.54% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
Merck Company vs. First American Funds
Performance |
| Timeline |
| Merck Company |
| First American Funds |
Merck and First American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and First American
The main advantage of trading using opposite Merck and First American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, First American 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 First American will offset losses from the drop in First American's long position.| Merck vs. Victory Integrity Smallmid Cap | Merck vs. Hilton Worldwide Holdings | Merck vs. NVIDIA | Merck vs. JPMorgan Chase Co |
| First American vs. T Rowe Price | First American vs. Blackrock High Yield | First American vs. Jpmorgan High Yield | First American vs. Prudential High Yield |
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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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