Correlation Between Merck and Upstart Holdings

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

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

Diversification Opportunities for Merck and Upstart Holdings

0.75

Correlation Coefficient

Merck  Upstart Holdings

Poor diversification

The 3 months correlation between Merck and Upstart is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Upstart Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Upstart Holdings 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 Upstart Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Upstart Holdings has no effect on the direction of Merck i.e., Merck and Upstart Holdings go up and down completely randomly.

Pair Corralation between Merck and Upstart Holdings

Considering the 90-day investment horizon Merck is expected to generate 3.51 times less return on investment than Upstart Holdings. But when comparing it to its historical volatility, Merck Company is 2.94 times less risky than Upstart Holdings. It trades about 0.11 of its potential returns per unit of risk. Upstart Holdings is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  4,747  in Upstart Holdings on May 18, 2025 and sell it today you would earn a total of  1,662  from holding Upstart Holdings or generate 35.01% return on investment over 90 days.

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

Merck Company  vs.  Upstart Holdings

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 unfluctuating basic indicators, Merck may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Upstart Holdings

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Upstart Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Upstart Holdings unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and Upstart Holdings

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

The idea behind Merck Company and Upstart Holdings 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.