Correlation Between Merck and Vanguard Index

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

Diversification Opportunities for Merck and Vanguard Index

-0.07
  Correlation Coefficient

Good diversification

The 3 months correlation between Merck and Vanguard is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Vanguard Index Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Index Trust 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 Vanguard Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Index Trust has no effect on the direction of Merck i.e., Merck and Vanguard Index go up and down completely randomly.

Pair Corralation between Merck and Vanguard Index

Considering the 90-day investment horizon Merck is expected to generate 2.28 times less return on investment than Vanguard Index. In addition to that, Merck is 1.12 times more volatile than Vanguard Index Trust. It trades about 0.13 of its total potential returns per unit of risk. Vanguard Index Trust is currently generating about 0.33 per unit of volatility. If you would invest  8,876  in Vanguard Index Trust on May 17, 2022 and sell it today you would earn a total of  1,590  from holding Vanguard Index Trust or generate 17.91% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Merck Company  vs.  Vanguard Index Trust

 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

Vanguard Index Trust 
Vanguard Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Index Trust are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Index may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Vanguard Price Channel

Merck and Vanguard Index Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merck and Vanguard Index

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

Vanguard Index Trust

Pair trading matchups for Vanguard Index

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.

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