Correlation Between Merck and Uber Technologies

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

Diversification Opportunities for Merck and Uber Technologies

0.63
  Correlation Coefficient

Poor diversification

The 3 months correlation between Merck and Uber is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Uber Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Uber Technologies 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 Company are associated (or correlated) with Uber Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Uber Technologies has no effect on the direction of Merck i.e., Merck and Uber Technologies go up and down completely randomly.

Pair Corralation between Merck and Uber Technologies

Considering the 90-day investment horizon Merck is expected to generate 2.22 times less return on investment than Uber Technologies. But when comparing it to its historical volatility, Merck Company is 2.5 times less risky than Uber Technologies. It trades about 0.08 of its potential returns per unit of risk. Uber Technologies is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,068  in Uber Technologies on January 17, 2024 and sell it today you would earn a total of  4,272  from holding Uber Technologies or generate 139.24% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Merck Company  vs.  Uber Technologies

 Performance 
       Timeline  
Merck Company 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Merck may actually be approaching a critical reversion point that can send shares even higher in May 2024.
Uber Technologies 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Uber Technologies are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating technical and fundamental indicators, Uber Technologies reported solid returns over the last few months and may actually be approaching a breakup point.

Merck and Uber Technologies Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merck and Uber Technologies

The main advantage of trading using opposite Merck and Uber Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Uber Technologies 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 Uber Technologies will offset losses from the drop in Uber Technologies' long position.
The idea behind Merck Company and Uber Technologies 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.

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