Correlation Between Microsoft Corp and Merck

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

Diversification Opportunities for Microsoft Corp and Merck

-0.56
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Microsoft and Merck is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft Corp and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Microsoft Corp 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 Microsoft Corp are associated (or correlated) with Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Microsoft Corp i.e., Microsoft Corp and Merck go up and down completely randomly.

Pair Corralation between Microsoft Corp and Merck

Given the investment horizon of 90 days Microsoft Corp is expected to generate 1.06 times less return on investment than Merck. In addition to that, Microsoft Corp is 1.28 times more volatile than Merck Company. It trades about 0.04 of its total potential returns per unit of risk. Merck Company is currently generating about 0.05 per unit of volatility. If you would invest  6,897  in Merck Company on April 4, 2022 and sell it today you would earn a total of  2,345  from holding Merck Company or generate 34.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Microsoft Corp  vs.  Merck Company

 Performance (%) 
      Timeline 
Microsoft Corp 
Microsoft Performance
0 of 100
Over the last 90 days Microsoft Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in August 2022. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Structure and Payout Changes

Forward Annual Dividend Yield
0.0096
Payout Ratio
0.26
Last Split Factor
2:1
Forward Annual Dividend Rate
2.48
Dividend Date
2022-06-09
Ex Dividend Date
2022-08-17
Last Split Date
2003-02-18

Microsoft Price Channel

Merck Company 
Merck Performance
9 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Merck may actually be approaching a critical reversion point that can send shares even higher in August 2022.

Structure and Payout Changes

Forward Annual Dividend Yield
0.0299
Payout Ratio
0.39
Last Split Factor
1048:1000
Forward Annual Dividend Rate
2.76
Dividend Date
2022-07-08
Ex Dividend Date
2022-06-14
Last Split Date
2021-06-03

Merck Price Channel

Microsoft Corp and Merck Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Microsoft Corp and Merck

The main advantage of trading using opposite Microsoft Corp and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft Corp position performs unexpectedly, Merck 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 Merck will offset losses from the drop in Merck's long position.
The idea behind Microsoft Corp and Merck Company 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.

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