Correlation Between Procter Gamble and Merck
Can any of the company-specific risk be diversified away by investing in both Procter Gamble 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 Procter Gamble and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Procter Gamble DRC and Merck Company, you can compare the effects of market volatilities on Procter Gamble 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 Procter Gamble with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Procter Gamble and Merck.
Diversification Opportunities for Procter Gamble and Merck
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Procter and Merck is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Procter Gamble DRC and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Procter Gamble 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 Procter Gamble DRC 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 Procter Gamble i.e., Procter Gamble and Merck go up and down completely randomly.
Pair Corralation between Procter Gamble and Merck
Assuming the 90 days horizon Procter Gamble DRC is expected to under-perform the Merck. In addition to that, Procter Gamble is 1.1 times more volatile than Merck Company. It trades about -0.07 of its total potential returns per unit of risk. Merck Company is currently generating about 0.08 per unit of volatility. If you would invest 2,290,000 in Merck Company on October 20, 2024 and sell it today you would earn a total of 42,500 from holding Merck Company or generate 1.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Procter Gamble DRC vs. Merck Company
Performance |
| Timeline |
| Procter Gamble DRC |
| Merck Company |
Procter Gamble and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Procter Gamble and Merck
The main advantage of trading using opposite Procter Gamble and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Procter Gamble 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.| Procter Gamble vs. Transportadora de Gas | Procter Gamble vs. Compania de Transporte | Procter Gamble vs. Harmony Gold Mining | Procter Gamble vs. Agrometal SAI |
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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
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