Correlation Between Merck and L3Harris Technologies

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Can any of the company-specific risk be diversified away by investing in both Merck and L3Harris Technologies 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 L3Harris Technologies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and L3Harris Technologies, you can compare the effects of market volatilities on Merck and L3Harris Technologies 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 L3Harris Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and L3Harris Technologies.

Diversification Opportunities for Merck and L3Harris Technologies

0.0
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between Merck and L3Harris is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and L3Harris Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on L3Harris Technologies 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 L3Harris Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of L3Harris Technologies has no effect on the direction of Merck i.e., Merck and L3Harris Technologies go up and down completely randomly.

Pair Corralation between Merck and L3Harris Technologies

Considering the 90-day investment horizon Merck Company is expected to under-perform the L3Harris Technologies. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.33 times less risky than L3Harris Technologies. The stock trades about -0.1 of its potential returns per unit of risk. The L3Harris Technologies is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  22,702  in L3Harris Technologies on May 14, 2022 and sell it today you would earn a total of  972.00  from holding L3Harris Technologies or generate 4.28% return on investment over 90 days.
Time Period3 Months [change]
DirectionFlat 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Merck Company  vs.  L3Harris Technologies

 Performance (%) 
       Timeline  
Merck Company 
Merck Performance
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Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Merck is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Merck Price Channel

L3Harris Technologies 
L3Harris Performance
0 of 100
Over the last 90 days L3Harris Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, L3Harris Technologies is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

L3Harris Price Channel

Merck and L3Harris Technologies Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merck and L3Harris Technologies

The main advantage of trading using opposite Merck and L3Harris Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, L3Harris Technologies 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 L3Harris Technologies will offset losses from the drop in L3Harris Technologies' long position.
The idea behind Merck Company and L3Harris Technologies 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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