Correlation Between Merck and Flaherty Crumrine

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

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

Diversification Opportunities for Merck and Flaherty Crumrine

-0.42

Correlation Coefficient

Merck  Flaherty Crumrine

Very good diversification

The 3 months correlation between Merck and Flaherty is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Flaherty Crumrine Preferred in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flaherty Crumrine 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 Flaherty Crumrine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flaherty Crumrine has no effect on the direction of Merck i.e., Merck and Flaherty Crumrine go up and down completely randomly.

Pair Corralation between Merck and Flaherty Crumrine

Considering the 90-day investment horizon Merck Company is expected to under-perform the Flaherty Crumrine. In addition to that, Merck is 2.12 times more volatile than Flaherty Crumrine Preferred. It trades about -0.12 of its total potential returns per unit of risk. Flaherty Crumrine Preferred is currently generating about 0.25 per unit of volatility. If you would invest  1,447  in Flaherty Crumrine Preferred on July 5, 2024 and sell it today you would earn a total of  188.00  from holding Flaherty Crumrine Preferred or generate 12.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Merck Company  vs.  Flaherty Crumrine Preferred

Merck Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Flaherty Crumrine

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Flaherty Crumrine Preferred are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Flaherty Crumrine may actually be approaching a critical reversion point that can send shares even higher in November 2024.

Pair Trading with Merck and Flaherty Crumrine

The main advantage of trading using opposite Merck and Flaherty Crumrine positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Flaherty Crumrine 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 Flaherty Crumrine will offset losses from the drop in Flaherty Crumrine's long position.

The idea behind Merck Company and Flaherty Crumrine Preferred 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.