Correlation Between Exxon and Merck
Can any of the company-specific risk be diversified away by investing in both Exxon 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 Exxon and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Exxon Mobil Corp and Merck Company, you can compare the effects of market volatilities on Exxon 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 Exxon with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and Merck.
Diversification Opportunities for Exxon and Merck
Excellent diversification
The 3 months correlation between Exxon and Merck is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Exxon 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 Exxon Mobil Corp 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 Exxon i.e., Exxon and Merck go up and down completely randomly.
Pair Corralation between Exxon and Merck
Considering the 90-day investment horizon Exxon Mobil Corp is expected to generate 0.92 times more return on investment than Merck. However, Exxon Mobil Corp is 1.09 times less risky than Merck. It trades about 0.12 of its potential returns per unit of risk. Merck Company is currently generating about -0.17 per unit of risk. If you would invest 11,852 in Exxon Mobil Corp on August 26, 2024 and sell it today you would earn a total of 327.00 from holding Exxon Mobil Corp or generate 2.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Exxon Mobil Corp vs. Merck Company
Performance |
| Timeline |
| Exxon Mobil Corp |
| Merck Company |
Exxon and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Exxon and Merck
The main advantage of trading using opposite Exxon and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon 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.| Exxon vs. Shell PLC ADR | Exxon vs. Suncor Energy | Exxon vs. Cenovus Energy | Exxon vs. Petrleo Brasileiro SA |
| Merck vs. Capricor Therapeutics | Merck vs. Akari Therapeutics PLC | Merck vs. Soleno Therapeutics | Merck vs. Bio Path Holdings |
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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