Correlation Between Merck and Life Storage

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

Diversification Opportunities for Merck and Life Storage

-0.14
  Correlation Coefficient

Good diversification

The 3 months correlation between Merck and Life Storage is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Life Storage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Life Storage 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 Life Storage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Life Storage has no effect on the direction of Merck i.e., Merck and Life Storage go up and down completely randomly.

Pair Corralation between Merck and Life Storage

Considering the 90-day investment horizon Merck Company is expected to generate 0.82 times more return on investment than Life Storage. However, Merck Company is 1.22 times less risky than Life Storage. It trades about 0.06 of its potential returns per unit of risk. Life Storage is currently generating about -0.44 per unit of risk. If you would invest  8,536  in Merck Company on July 2, 2022 and sell it today you would earn a total of  128.00  from holding Merck Company or generate 1.5% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy95.45%
ValuesDaily Returns

Merck Company  vs.  Life Storage

 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 latest conflicting performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Merck Price Channel

Life Storage 
Life Storage Performance
0 of 100
Over the last 90 days Life Storage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Life Storage is not utilizing all of its potentials. The new stock price disturbance, may contribute to mid-run losses for the stockholders.

Life Storage Price Channel

Merck and Life Storage Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merck and Life Storage

The main advantage of trading using opposite Merck and Life Storage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Life Storage 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 Life Storage will offset losses from the drop in Life Storage's long position.
Merck vs. Amazon Inc
The idea behind Merck Company and Life Storage 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.
Life Storage vs. JP Morgan Chase
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 Probability Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.

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