Correlation Between Merck and IShares SP
Can any of the company-specific risk be diversified away by investing in both Merck and IShares SP 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 IShares SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and iShares SP Small Cap, you can compare the effects of market volatilities on Merck and IShares SP 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 IShares SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and IShares SP.
Diversification Opportunities for Merck and IShares SP
-0.71 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Merck and IShares is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and iShares SP Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SP Small 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 IShares SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SP Small has no effect on the direction of Merck i.e., Merck and IShares SP go up and down completely randomly.
Pair Corralation between Merck and IShares SP
Considering the 90-day investment horizon Merck Company is expected to under-perform the IShares SP. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.15 times less risky than IShares SP. The stock trades about -0.17 of its potential returns per unit of risk. The iShares SP Small Cap is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 10,766 in iShares SP Small Cap on August 30, 2024 and sell it today you would earn a total of 945.00 from holding iShares SP Small Cap or generate 8.78% 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. iShares SP Small Cap
Performance |
| Timeline |
| Merck Company |
| iShares SP Small |
Merck and IShares SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and IShares SP
The main advantage of trading using opposite Merck and IShares SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, IShares SP 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 IShares SP will offset losses from the drop in IShares SP's long position.| Merck vs. Emergent Biosolutions | Merck vs. Bausch Health Companies | Merck vs. Neurocrine Biosciences | Merck vs. Teva Pharma Industries |
| IShares SP vs. iShares SP Small Cap | IShares SP vs. iShares SP Mid Cap | IShares SP vs. iShares SP Mid Cap | IShares SP vs. iShares SP 500 |
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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