Correlation Between Merck and Vanguard

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

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

Diversification Opportunities for Merck and Vanguard

-0.71

Correlation Coefficient

Merck  Vanguard

Pay attention - limited upside

The 3 months correlation between Merck and Vanguard is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Vanguard SP Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP Mid 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 Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP Mid has no effect on the direction of Merck i.e., Merck and Vanguard go up and down completely randomly.

Pair Corralation between Merck and Vanguard

Considering the 90-day investment horizon Merck Company is expected to under-perform the Vanguard. In addition to that, Merck is 1.11 times more volatile than Vanguard SP Mid Cap. It trades about -0.02 of its total potential returns per unit of risk. Vanguard SP Mid Cap is currently generating about 0.35 per unit of volatility. If you would invest  11,312  in Vanguard SP Mid Cap on September 1, 2024 and sell it today you would earn a total of  1,010  from holding Vanguard SP Mid Cap or generate 8.93% return on investment over 90 days.

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

Merck Company  vs.  Vanguard SP Mid Cap

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 abnormal 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.

Vanguard SP Mid

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP Mid Cap are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Vanguard may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Merck and Vanguard

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

The idea behind Merck Company and Vanguard SP Mid Cap 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..