Correlation Between Merck and SPDR SP
Can any of the company-specific risk be diversified away by investing in both Merck and SPDR 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 SPDR 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 SPDR SP World, you can compare the effects of market volatilities on Merck and SPDR 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 SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and SPDR SP.
Diversification Opportunities for Merck and SPDR SP
Excellent diversification
The 3 months correlation between Merck and SPDR is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and SPDR SP World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP World 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP World has no effect on the direction of Merck i.e., Merck and SPDR SP go up and down completely randomly.
Pair Corralation between Merck and SPDR SP
Considering the 90-day investment horizon Merck Company is expected to under-perform the SPDR SP. In addition to that, Merck is 2.75 times more volatile than SPDR SP World. It trades about -0.35 of its total potential returns per unit of risk. SPDR SP World is currently generating about 0.36 per unit of volatility. If you would invest 3,466 in SPDR SP World on November 18, 2024 and sell it today you would earn a total of 211.00 from holding SPDR SP World or generate 6.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. SPDR SP World
Performance |
| Timeline |
| Merck Company |
| SPDR SP World |
Merck and SPDR SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and SPDR SP
The main advantage of trading using opposite Merck and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, SPDR 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 SPDR SP will offset losses from the drop in SPDR SP's long position.The idea behind Merck Company and SPDR SP World 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.| SPDR SP vs. SPDR Portfolio Emerging | SPDR SP vs. SPDR Portfolio SP | SPDR SP vs. SPDR Portfolio SP | SPDR SP vs. SPDR Russell Small |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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