Correlation Between Microsoft and Merck
Can any of the company-specific risk be diversified away by investing in both Microsoft and Merck 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 Microsoft and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Merck Company, you can compare the effects of market volatilities on Microsoft and Merck 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 Microsoft with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Merck.
Diversification Opportunities for Microsoft and Merck
Good diversification
The 3 months correlation between Microsoft and Merck is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Microsoft 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 Microsoft are associated (or correlated) with Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Microsoft i.e., Microsoft and Merck go up and down completely randomly.
Pair Corralation between Microsoft and Merck
Given the investment horizon of 90 days Microsoft is expected to generate 1.11 times more return on investment than Merck. However, Microsoft is 1.11 times more volatile than Merck Company. It trades about 0.09 of its potential returns per unit of risk. Merck Company is currently generating about 0.0 per unit of risk. If you would invest 23,879 in Microsoft on October 20, 2024 and sell it today you would earn a total of 19,024 from holding Microsoft or generate 79.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Merck Company
Performance |
| Timeline |
| Microsoft |
| Merck Company |
Microsoft and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Merck
The main advantage of trading using opposite Microsoft and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Merck 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 Merck will offset losses from the drop in Merck's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Merck vs. Agilent Technologies | Merck vs. Equillium | Merck vs. 23Andme Holding Co | Merck vs. DiaMedica Therapeutics |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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