Correlation Between Merck and Salesforce

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

Diversification Opportunities for Merck and Salesforce

-0.12
  Correlation Coefficient

Good diversification

The 3 months correlation between Merck and Salesforce is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Salesforce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Salesforce 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 Salesforce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Salesforce has no effect on the direction of Merck i.e., Merck and Salesforce go up and down completely randomly.

Pair Corralation between Merck and Salesforce

Considering the 90-day investment horizon Merck Company is expected to generate 0.33 times more return on investment than Salesforce. However, Merck Company is 3.01 times less risky than Salesforce. It trades about 0.31 of its potential returns per unit of risk. Salesforce is currently generating about -0.08 per unit of risk. If you would invest  10,007  in Merck Company on September 8, 2022 and sell it today you would earn a total of  886.00  from holding Merck Company or generate 8.85% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Merck Company  vs.  Salesforce

 Performance (%) 
       Timeline  
Merck Company 
Merck Performance
21 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, Merck demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Merck Price Channel

Salesforce 
Salesforce Performance
0 of 100
Over the last 90 days Salesforce has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's basic indicators remain relatively steady which may send shares a bit higher in January 2023. The new chaos may also be a sign of medium-term up-swing for the company stakeholders.

Salesforce Price Channel

Merck and Salesforce Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merck and Salesforce

The main advantage of trading using opposite Merck and Salesforce positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Salesforce 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 Salesforce will offset losses from the drop in Salesforce's long position.
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The idea behind Merck Company and Salesforce 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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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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.

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