Correlation Between Merck and Procter Gamble

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

Diversification Opportunities for Merck and Procter Gamble

0.7
  Correlation Coefficient

Poor diversification

The 3 months correlation between Merck and Procter is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Procter Gamble in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Procter Gamble 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 Procter Gamble. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Procter Gamble has no effect on the direction of Merck i.e., Merck and Procter Gamble go up and down completely randomly.

Pair Corralation between Merck and Procter Gamble

Considering the 90-day investment horizon Merck Company is expected to generate 1.12 times more return on investment than Procter Gamble. However, Merck is 1.12 times more volatile than Procter Gamble. It trades about 0.01 of its potential returns per unit of risk. Procter Gamble is currently generating about -0.29 per unit of risk. If you would invest  8,688  in Merck Company on July 1, 2022 and sell it today you would earn a total of  2.00  from holding Merck Company or generate 0.02% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Merck Company  vs.  Procter Gamble

 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 latest stock price confusion, may contribute to short-horizon losses for the traders.

Merck Price Channel

Procter Gamble 
Procter Performance
0 of 100
Over the last 90 days Procter Gamble has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Procter Price Channel

Merck and Procter Gamble Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merck and Procter Gamble

The main advantage of trading using opposite Merck and Procter Gamble positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Procter Gamble 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 Procter Gamble will offset losses from the drop in Procter Gamble's long position.
Merck vs. Amazon Inc
The idea behind Merck Company and Procter Gamble 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.
Procter Gamble vs. Amazon Inc
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.

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