Correlation Between Salesforce and Merck
Can any of the company-specific risk be diversified away by investing in both Salesforce 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 Salesforce and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Salesforce and Merck Company, you can compare the effects of market volatilities on Salesforce 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 Salesforce with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Salesforce and Merck.
Diversification Opportunities for Salesforce and Merck
0.28 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Salesforce and Merck is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Salesforce and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Salesforce 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 Salesforce 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 Salesforce i.e., Salesforce and Merck go up and down completely randomly.
Pair Corralation between Salesforce and Merck
Considering the 90-day investment horizon Salesforce is expected to under-perform the Merck. In addition to that, Salesforce is 1.58 times more volatile than Merck Company. It trades about -0.26 of its total potential returns per unit of risk. Merck Company is currently generating about 0.06 per unit of volatility. If you would invest 12,531 in Merck Company on January 24, 2024 and sell it today you would earn a total of 163.00 from holding Merck Company or generate 1.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Salesforce vs. Merck Company
Performance |
| Timeline |
| Salesforce |
| Merck Company |
Salesforce and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Salesforce and Merck
The main advantage of trading using opposite Salesforce and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Salesforce 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.The idea behind Salesforce and Merck Company 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.| Merck vs. Silver Spike Investment | Merck vs. Alkermes Plc | Merck vs. Eagle Pharmaceuticals | Merck vs. Evotec SE ADR |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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