Correlation Between Merck and Fifth Third

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

Diversification Opportunities for Merck and Fifth Third

0.12
  Correlation Coefficient

Average diversification

The 23 months correlation between Merck and Fifth is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Fifth Third Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fifth Third Bancorp 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 Fifth Third. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fifth Third Bancorp has no effect on the direction of Merck i.e., Merck and Fifth Third go up and down completely randomly.

Pair Corralation between Merck and Fifth Third

Considering the 90-day investment horizon Merck Company is expected to under-perform the Fifth Third. In addition to that, Merck is 1.38 times more volatile than Fifth Third Bancorp. It trades about -0.1 of its total potential returns per unit of risk. Fifth Third Bancorp is currently generating about 0.11 per unit of volatility. If you would invest  2,510  in Fifth Third Bancorp on May 14, 2022 and sell it today you would earn a total of  57.00  from holding Fifth Third Bancorp or generate 2.27% return on investment over 90 days.
Time Period23 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Merck Company  vs.  Fifth Third Bancorp

 Performance (%) 
       Timeline  
Merck Company 
Merck Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Merck is not utilizing all of its potentials. The new stock price confusion, may contribute to short-horizon losses for the traders.

Merck Price Channel

Fifth Third Bancorp 
Fifth Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Fifth Third Bancorp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, Fifth Third is not utilizing all of its potentials. The new stock price disarray, may contribute to short-term losses for the insiders.

Fifth Price Channel

Merck and Fifth Third Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merck and Fifth Third

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

Fifth Third Bancorp

Pair trading matchups for Fifth Third

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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.

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