Correlation Between Verizon Communications and Merck
Can any of the company-specific risk be diversified away by investing in both Verizon Communications 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 Verizon Communications and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verizon Communications and Merck Co, you can compare the effects of market volatilities on Verizon Communications 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 Verizon Communications with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Verizon Communications and Merck.
Diversification Opportunities for Verizon Communications and Merck
-0.14 | Correlation Coefficient |
Good diversification
The 3 months correlation between Verizon and Merck is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Merck Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck and Verizon Communications 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 Verizon Communications 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 has no effect on the direction of Verizon Communications i.e., Verizon Communications and Merck go up and down completely randomly.
Pair Corralation between Verizon Communications and Merck
Assuming the 90 days trading horizon Verizon Communications is expected to generate 0.65 times more return on investment than Merck. However, Verizon Communications is 1.54 times less risky than Merck. It trades about 0.54 of its potential returns per unit of risk. Merck Co is currently generating about 0.09 per unit of risk. If you would invest 3,925 in Verizon Communications on September 4, 2024 and sell it today you would earn a total of 514.00 from holding Verizon Communications or generate 13.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Verizon Communications vs. Merck Co
Performance |
| Timeline |
| Verizon Communications |
| Merck |
Verizon Communications and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Verizon Communications and Merck
The main advantage of trading using opposite Verizon Communications and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Verizon Communications 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.| Verizon Communications vs. Telefnica Brasil SA | Verizon Communications vs. TIM SA | Verizon Communications vs. Oi SA |
| Merck vs. Multilaser Industrial SA | Merck vs. Metalrgica Riosulense SA | Merck vs. Verizon Communications | Merck vs. Charter Communications |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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