Correlation Between Hexcel and Merck

Can any of the company-specific risk be diversified away by investing in both Hexcel 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 Hexcel and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hexcel and Merck Company, you can compare the effects of market volatilities on Hexcel 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 Hexcel with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hexcel and Merck.

Diversification Opportunities for Hexcel and Merck

0.74

Correlation Coefficient

Hexcel  Merck

Poor diversification

The 3 months correlation between Hexcel and Merck is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Hexcel and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Hexcel 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 Hexcel 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 Hexcel i.e., Hexcel and Merck go up and down completely randomly.

Pair Corralation between Hexcel and Merck

Considering the 90-day investment horizon Hexcel is expected to generate 1.02 times more return on investment than Merck. However, Hexcel is 1.02 times more volatile than Merck Company. It trades about 0.16 of its potential returns per unit of risk. Merck Company is currently generating about 0.11 per unit of risk. If you would invest  5,368  in Hexcel on May 14, 2025 and sell it today you would earn a total of  827.00  from holding Hexcel or generate 15.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Hexcel  vs.  Merck Company

Hexcel

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Hexcel are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal basic indicators, Hexcel disclosed solid returns over the last few months and may actually be approaching a breakup point.

Merck Company

Risk-Adjusted Performance

Fair

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 September 2025.

Pair Trading with Hexcel and Merck

The main advantage of trading using opposite Hexcel and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hexcel 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 Hexcel 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.

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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.