Correlation Between Macys and Merck

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Can any of the company-specific risk be diversified away by investing in both Macys 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 Macys and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Macys Inc and Merck Company, you can compare the effects of market volatilities on Macys 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 Macys with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Macys and Merck.

Diversification Opportunities for Macys and Merck

-0.07
  Correlation Coefficient

Good diversification

The 3 months correlation between Macys and Merck is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Macys Inc and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Macys 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 Macys Inc 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 Macys i.e., Macys and Merck go up and down completely randomly.

Pair Corralation between Macys and Merck

Taking into account the 90-day investment horizon Macys is expected to generate 2.65 times less return on investment than Merck. In addition to that, Macys is 2.83 times more volatile than Merck Company. It trades about 0.01 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  8,285  in Merck Company on December 29, 2023 and sell it today you would earn a total of  4,890  from holding Merck Company or generate 59.02% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Macys Inc  vs.  Merck Company

 Performance 
       Timeline  
Macys Inc 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Macys Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Macys is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.
Merck Company 

Risk-Adjusted Performance

21 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Merck disclosed solid returns over the last few months and may actually be approaching a breakup point.

Macys and Merck Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Macys and Merck

The main advantage of trading using opposite Macys and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Macys 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 Macys Inc 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.
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.

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