Correlation Between MERCK and 00108WAF7

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Can any of the company-specific risk be diversified away by investing in both MERCK and 00108WAF7 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 00108WAF7 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MERCK INC and AEP TEX INC, you can compare the effects of market volatilities on MERCK and 00108WAF7 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 00108WAF7. Check out your portfolio center. Please also check ongoing floating volatility patterns of MERCK and 00108WAF7.

Diversification Opportunities for MERCK and 00108WAF7

0.53
  Correlation Coefficient

Very weak diversification

The 3 months correlation between MERCK and 00108WAF7 is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding MERCK INC and AEP TEX INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AEP TEX INC 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 INC are associated (or correlated) with 00108WAF7. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AEP TEX INC has no effect on the direction of MERCK i.e., MERCK and 00108WAF7 go up and down completely randomly.

Pair Corralation between MERCK and 00108WAF7

Assuming the 90 days trading horizon MERCK is expected to generate 1.23 times less return on investment than 00108WAF7. But when comparing it to its historical volatility, MERCK INC is 1.15 times less risky than 00108WAF7. It trades about 0.21 of its potential returns per unit of risk. AEP TEX INC is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  7,270  in AEP TEX INC on November 29, 2024 and sell it today you would earn a total of  269.00  from holding AEP TEX INC or generate 3.7% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy89.47%
ValuesDaily Returns

MERCK INC  vs.  AEP TEX INC

 Performance 
       Timeline  
MERCK INC 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days MERCK INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, MERCK is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.
AEP TEX INC 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days AEP TEX INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 00108WAF7 is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

MERCK and 00108WAF7 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with MERCK and 00108WAF7

The main advantage of trading using opposite MERCK and 00108WAF7 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MERCK position performs unexpectedly, 00108WAF7 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 00108WAF7 will offset losses from the drop in 00108WAF7's long position.
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The idea behind MERCK INC and AEP TEX INC 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.
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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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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