Correlation Between Merck and Halliburton

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

Diversification Opportunities for Merck and Halliburton

-0.16
  Correlation Coefficient

Good diversification

The 3 months correlation between Merck and Halliburton is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Halliburton in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Halliburton 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 Halliburton. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Halliburton has no effect on the direction of Merck i.e., Merck and Halliburton go up and down completely randomly.

Pair Corralation between Merck and Halliburton

Considering the 90-day investment horizon Merck Company is expected to generate 0.42 times more return on investment than Halliburton. However, Merck Company is 2.4 times less risky than Halliburton. It trades about 0.13 of its potential returns per unit of risk. Halliburton is currently generating about -0.14 per unit of risk. If you would invest  8,450  in Merck Company on May 15, 2022 and sell it today you would earn a total of  652.00  from holding Merck Company or generate 7.72% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Merck Company  vs.  Halliburton

 Performance (%) 
       Timeline  
Merck Company 
Merck Performance
0 of 100
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 new stock price confusion, may contribute to short-horizon losses for the traders.

Merck Price Channel

Halliburton 
Halliburton Performance
0 of 100
Over the last 90 days Halliburton has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively steady which may send shares a bit higher in September 2022. The new chaos may also be a sign of medium-term up-swing for the company stakeholders.

Halliburton Price Channel

Merck and Halliburton Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merck and Halliburton

The main advantage of trading using opposite Merck and Halliburton positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Halliburton 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 Halliburton will offset losses from the drop in Halliburton's long position.
The idea behind Merck Company and Halliburton 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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